1

MONEY AND ITS USAGE:

An Analysis in the Light of Shariah

Author: Traslator: Editor:

Moulana Dr. Asmatullah Omar Javaid Erum Surfraz

Table of Contents
PREFACE.......................................................................................................... 9 CHAPTER-1: MONEY AN INTRODUCTION .....................................................11 CHARACTERISTICS OF MONEY ......................................................................... 13 1. A medium of exchange ................................................................... 13 2. Wide acceptability .......................................................................... 14 3. A measure of value ......................................................................... 14 4. A means to store value ................................................................... 14 THE NATURE OF MONEY ............................................................................... 15 OPINION OF ISLAMIC SCHOLAR ON THE NATURE OF MONEY ................................. 18 FORMS OF MONEY ....................................................................................... 23 Importance of Gold and Silver ............................................................ 24 Difference in Money and Wealth ........................................................ 25 DIFFERENCE BETWEEN MONEY AND CURRENCY ................................................. 25 EVOLUTION AND USAGE HISTORY OF MONEY .................................................... 26 THE COMMODITY MONEY SYSTEM.................................................................. 26 THE RISE AND FALL OF METALLIC MONEY SYSTEM ............................................. 26 The evolution of money at a glance: .................................................. 33 VARIOUS STAGES IN THE HISTORY OF MINTING.................................................. 35 HISTORY OF FULOOS ..................................................................................... 38 LEGAL RIGHTS TO MINT COINS ....................................................................... 39 FUNCTIONS OF MONEY IN SHARIAH AND ECONOMICS ......................................... 40 As a Means of Exchange ..................................................................... 40 Standard of Value ............................................................................... 41 Store of Value ..................................................................................... 41 Standard of Deferred Payments ......................................................... 41 INFLATION AND DEFLATION............................................................................ 43 CHAPTER-2: RIBA (INTEREST/USURY) .............................................................45 SYNOPSIS OF EVIDENCE ON IMPORTANCE OF RIBA .............................................. 45 TYPES OF RIBA ............................................................................................ 47 Riba An-Nasiyah ( ).................................................................. 47 Riba Al-Fadl ( )............................................................................. 48

3 RIBA AL-FADL ............................................................................................. 52 DEFINITION OF ILLAH .................................................................................... 53 Extract of Definitions of Illah: ............................................................. 53 Hikmah (Wisdom): .............................................................................. 54 The Difference Between Illah and Hikmah ......................................... 55 INVESTIGATION OF ILLAH ON RIBA IN THE FORM OF MONEY ................................. 57 st 1 Verdict............................................................................................ 57 nd 2 Verdict ........................................................................................... 59 rd 3 Verdict ........................................................................................... 60 ILLAH OF RIBA AL-NASIAH ............................................................................. 60 st 1 Benefit of Extended Scope of Ruling of Riba .................................. 61 nd 2 Benefit: Difference Between Riba AL-Nasiyah ( )AND Riba AnNasa ( ) .......................................................................................... 62 WHAT IS SAMANIAT ( ?)......................................................................... 63 CHAPTER-3: CURRENCY NOTES AND FULOOS .................................................65 CURRENCY NOTES ........................................................................................ 65 PAPER NOTE AS A CERTIFICATE OF DEBT. .......................................................... 66 Justifications Favoring the Viewpoint ................................................. 66 Contradictions of this Viewpoint with Principles of Jurisprudence ..... 67 Analysis ............................................................................................... 68 PAPER NOTE AS A FORM OF ASSET OR GOODS................................................... 69 Justifications Favoring this Viewpoint ................................................ 70 Contradiction with Principles of Jurisprudence ................................... 72 Analysis ............................................................................................... 73 PAPER NOTES AS A SUBSTITUTE FOR GOLD OR SILVER ......................................... 74 Justifications Favoring this Viewpoint ................................................ 74 Implications while Implementation .................................................... 75 Analysis ............................................................................................... 75 PAPER NOTE AS A CUSTOMARY PRICE AND ITS TREATMENT AS FULOOS ................ 76 Justifications Confirming this Viewpoint............................................. 80 STATUS OF PAPER NOTES IN JURISPRUDENCE: ................................................... 82 CHAPTER-4: FULOOS ......................................................................................84 SUMMARY OF THE EVOLUTION OF FULOOS ....................................................... 84 DIFFERENCE OF OPINION ON FULOOS BEING SAMAN IN JURISPRUDENCE ................ 85

4 The Opinions of the First Group .......................................................... 86 The Second Group: Imam Abu Hanifa and Imam Abu Yousuf (RA):.... 93 Opinion of Scholars of Hanbali School of Thought ............................. 95 CHAPTER-5: MONEY EXCHANGE ( ) .....................................................97 TERMINOLOGICAL MEANING OF BAY SURF ...................................................... 98 Muratla ............................................................................................. 103 Mubadala ......................................................................................... 103 Surf ................................................................................................... 103 BAYSURF AND ITS CONDITIONS.................................................................... 104 Significance of Stated Conditions ..................................................... 105 SOME IMPORTANT ISSUES IN EXCHANGE OF GOLD, SILVER AND JEWELRY .............. 118 BARTER OF GOLD AND SILVER JEWELRY WITH RAW GOLD AND SILVER .................. 122 Practical Implications: ...................................................................... 124 TRADING JEWELRY WITH CRYSTALS WITH GOLD OR SILVER ................................. 126 SOME CRITICAL ISSUES ................................................................................ 126 SOME ALTERNATES OF OBJECTIONABLE TRANSACTIONS..................................... 127 Sale and Purchase of Gold Mixed Sand ............................................ 128 Exchange of Old Jewelry with New ................................................... 128 ADVANCE CONTRACT WITH SPOT PAYMENT .................................................... 129 THE ISSUES OF MATERIAL USED IN WELDING .................................................. 130 Wastage ........................................................................................... 130 SOME CONTEMPORARY MODES OF TRADING GOLD AND SILVER ......................... 132 The Role of the Company in this Trading: ......................................... 132 Spot Trading ..................................................................................... 133 Future Trading .................................................................................. 134 ANOTHER MANNER OF COMMODITY EXCHANGE.............................................. 135 CHAPTER-6: EXCHANGE OF CURRENCY OR FULOOS .....................................136 BAYSURF AND FULOOS............................................................................... 136 DOES EXCHANGE OF CURRENCY NOTES QUALIFY AS BAYSURF? ......................... 141 st 1 Group of Scholars ......................................................................... 142 nd 2 Group of Scholars ........................................................................ 143 rd 3 Group of Scholars ........................................................................ 145 th 4 Group of Scholars ........................................................................ 146 CURRENCY EXCHANGE OR TRADE .................................................................. 148

5 A Contemporary and Erroneous Verdict on Currency Notes ............. 148 THE ISSUE OF POSSESSION IN CURRENCY EXCHANGE ......................................... 150 EXCHANGE OF CURRENCY NOTES AS CREDIT .................................................... 152 RULE OF HUNDI IN CURRENCY EXCHANGE....................................................... 152 THE DEFINITION OF SUFTAJA ........................................................................ 153 Suftaja in Context of Shariah and Jurisprudence .............................. 153 Shariah Rulings on Suftaja ................................................................ 154 Summary of the Viewpoint of the First Group .................................. 154 Illah of Prohibition of Suftaja ............................................................ 155 Exemptions ( ) ....................................................................... 155 Viewpoint of the Second Group ........................................................ 156 Analysis and Debate ......................................................................... 157 MONEY ORDER ......................................................................................... 158 EXCHANGE OF CURRENCY OF DIFFERENT COUNTRIES ........................................ 161 Opinion of Hanafia Scholars ............................................................. 161 Opinion of Malikia Scholars .............................................................. 162 Opinion of Shafii and Hanbali Scholars ............................................ 162 RULES PERTAINING TO HUNDI IN CURRENCY EXCHANGE .................................... 162 Some Misconceptions and Clarifications .......................................... 163 SALE OF CURRENCY AT A RATE DIFFERENT THAN THE OFFICIAL RATE .................... 166 CREDIT SALE OF CURRENCIES OF DIFFERENT ORIGIN ......................................... 166 TWO WAY PROMISE IN INTERNATIONAL CURRENCY TRADE .............................. 168 Analysis and Preference of the Second Viewpoint ............................ 174 Effects of Penalty in a two way promise ........................................... 175 A NEW INTERNATIONAL MODE OF CURRENCY TRADE ....................................... 176 CHAPTER-7: VALUE OF MONEY ....................................................................179 TYPES OF FLUCTUATION IN VALUE OF MONEY ................................................. 180 FORFEITURE OR INQITA-E-ZAR ..................................................................... 180 Opinions of Jurists of Different Schools on Implications of Forfeiture on Trade .......................................................................................................... 181 Maliki School of Thought: ................................................................. 184 Opinion of the Shafii Scholars: ......................................................... 185 Opinion of Hanbali Scholars: ............................................................ 185 DEPRESSION ............................................................................................. 186 Opinion of Maliki and Shafii Scholars .............................................. 190

6 Opinion of Hanbali School of Thought .............................................. 192 SUMMARY ................................................................................................ 194 INFLATION ................................................................................................ 196 Characteristics of Inflation ................................................................ 196 Common Types of Inflation ............................................................... 197 The Reasons for Fluctuation in the Value of Money ......................... 197 DEFLATION ............................................................................................... 199 IMPLICATIONS OF FLUCTUATION IN THE VALUE OF MONEY................................. 199 Effect on Different Forms of Loans ................................................... 199 Effect on Wages or Salaries .............................................................. 199 INFLATION AND DEFLATION ACCORDING TO SHARIAH ....................................... 200 Opinion of Scholars on the Effect of Inflation on Trade Contracts.... 200 Verdict of Imam Abu Yousufs (RA) School of Thought: .................... 203 Correct Elaboration of the Verdict of Imam Abu Yousuf (RA): .......... 206 PRICE INDEX ............................................................................................. 208 Process of Calculating Price Index .................................................... 208 Selection of Items for the Index: ....................................................... 211 Estimation of Weight of Items: ......................................................... 211 Estimation of Prices of Selected Items: ............................................. 212 LINKING DEBT PAYMENTS AND WAGES TO THE PRICE INDEXATION SYSTEM ........... 213 A) Linking Debt Payments with Indexation System ...................... 213 B) Linking Wages with Price Index ............................................... 217 CHAPTER-8: CREDIT MONEY .........................................................................220 CREDIT MONEY ......................................................................................... 221 Basic Characteristics ......................................................................... 221 EVOLUTION OF CREDIT MONEY .................................................................... 223 PROS OF CREDIT MONEY ............................................................................. 225 Eliminates the Requirement to Carry Cash: ...................................... 225 Instrument of Credit: ........................................................................ 225 Benefits of Checks: ............................................................................ 225 Benefits of Bills of Exchange ............................................................. 226 CONDITIONS WHICH AUTHENTICATE CREDIT MONEY ........................................ 226 USING CREDIT MONEY................................................................................ 227 Legal Means of Endorsement ........................................................... 228 Types of Endorsement ...................................................................... 228

7 CHAPTER-9: FINANCIAL INSTRUMENTS ........................................................230 BACKGROUND OF DISCUSSION...................................................................... 230 Sale of Debt for Debt ( ) .................................................. 230 Sale of Debt to Debtor ( ) ..................................... 231 Sale of Debt to Non-Debtor ( ) .................... 232 HAWALA (TRANSFER OR ASSIGNMENT) .......................................................... 236 Terminologies ................................................................................... 236 Method ............................................................................................. 237 Conditions ......................................................................................... 237 Types of Hawala ............................................................................... 237 Rules of Hawala ................................................................................ 238 BANK CHECK ............................................................................................. 238 Difference between a Check and Bill of Payment ............................. 239 Types of Checks................................................................................. 239 Bank Check in the Light of Shariah ................................................... 240 BILL OF EXCHANGE ..................................................................................... 243 Requirements of Bill of Exchange ..................................................... 245 Common Types of Bill of Exchange ................................................... 245 Preparing a Bill of Exchange ............................................................. 246 Discounting of Bill of Exchange ........................................................ 247 Analysis of Bill of Exchange in the Light of Shariah .......................... 247 The Rule of Discounting .................................................................... 248 PROMISSORY NOTE .................................................................................... 252 Viewpoint in Shariah......................................................................... 253 Difference Between a Promissory Note and Bill of Exchange ........... 253 Difference Between a Promissory Note and a Bank Check ............... 254 PLASTIC MONEY ........................................................................................ 254 Credit Cards: ..................................................................................... 254 Debit Cards: ...................................................................................... 255 Charge Cards: ................................................................................... 255 The Shariah Verdict on the Use of Different Forms of Plastic Money255 BANK DRAFT ............................................................................................. 257 PAY ORDER .............................................................................................. 257 BOND ...................................................................................................... 258 Bonds Covertible to Shares ............................................................... 259

8 Government Bonds ........................................................................... 260 Shariah Standpoint on Bonds ........................................................... 260 CERTIFICATES ............................................................................................ 261 Shares Certificates ............................................................................ 264 Bonus Shares .................................................................................... 265 WARRANTS .............................................................................................. 266 OPTIONS .................................................................................................. 267 Popular Types of Options .................................................................. 268 SHARIAH RULINGS ON OPTIONS AND WARRANTS ............................................. 269 BAY-AL-DAIN ........................................................................................... 269 GLOSSARY OF TERMS ...................................................................................271 INDEX ...........................................................................................................275

PREFACE
There is little doubt that Islam is the most comprehensive religion today. It is a fully integrated philosophy which offers solutions and guidance for every aspect of life regardless of changing times and circumstances. The religion has resolutions for problems and issues related to all aspects of personal and community living. Similar is the case with Islamic rulings on monetary issues. It wont be wrong to say that money is and has been the backbone of societies since earliest times when cattle, including cows, sheep and camel, are known to have been its oldest forms. With agriculture, this barter or exchange of services and resources for mutual advantage, took on the form of grains and vegetables during the course of history. The role of money, including its earliest form of barter, has hence been pivotal in a sense that it flows like blood in the veins of a society maintaining social order and relationships between services and people. Much like healthy blood guarantees a healthy body; a healthy monetary flow guarantees the health of society and social order. However this monetary flow in the social order has not always been healthy and has been subjected to various illnesses over the course of its evolution through the ages. Though a lots of illnesses related to money have been resolved, many more still persist, unresolved. The most glaring conflict of interest between the conventional money management and monetary management as dictated by Islamic law has been over interest or Riba. In Pakistan specifically, though the Pakistan Supreme Court has passed a resolution for a transition from an interest based economy to one that is aligned with rules dictated by Islam, practical work is yet to be seen for the establishment of a purely interest free economic system in the country. Interest based economies are condemned by Islam as they are seen to be the bane of a healthy social order and the root cause of widespread social injustices. Theoretically it wont be wrong to say that Supreme Court rulings on the issue consistently fail to be implemented on the required level because the academic work related specifically to the topic, either in English or Urdu, remain

10 insufficiently comprehensive and limited in scope, failing to incorporate within its boundaries the bulk of the problems related to monetary issues in Islam. If any work does stand out in this regard, it has been done by Arab scholars whose mass research encompasses a greater bulk of rulings on Islamic monetary system as enforced by Islam. This is despite any differences of opinion which might exist between the scholars. Needless to say, what makes the task of drawing concrete solutions from the bulk of this research highly tedious is their scattered dispersal through the academia and lack of concentration in one place. This book include inquiries into the exact nature of the monetary unit, the number of problems created by the monetary inflation such as the hyperinflation in Afghanistan and Zimbabwe, bonds, financial certificates and similar other instrument of monetary exchange, and the validity and Islamic lawfulness of owning bank checks. This book InshaAllah aims to thoroughly discuss the above stated and other related issues. The original manuscript of this thesis is in Urdu, however since this topic is of international concern, therefore the significance of its translation into English language cannot be overemphasized. In this regards efforts of Brother Omar Javaid and Sister Erum Surfraz are indeed plausible, who have made their earnest effort to translate and edit this book, respectively. Assistance of Mufti Shakir and Mufti Zahid Sangharwi, to make-the work and coordination-among team members faster and smoother, are also commendable. Despite all the care and hard work by all team members, it is possible that some errors and mistakes would have been left. We anticipate that the readers of this book will pin-point those mistakes and inform the concerned so that necessary corrections are made in the forth coming editions. Yours Sincerily Ismatullah Teacher and Member Darulifta, Darululoom Karachi th 15 July, 2011

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CHAPTER-1: MONEY AN INTRODUCTION

The term Zarr or money is referred to as Naqd in the Arabic language. Naqood is the plural of the word. A study of ancient jurisprudence reveals that neither Naqd nor Naqood have been treated in a manner quite completing their real essence by contemporary economists in the modern era. What has further complicated the issue has been the introduction of three different opinions on Naqd in jurisprudence literature. 1 Opinion: The term Zarr can refer only to silver or gold whether in the form of 1 minted coins such as dirham or dinar or in the form of gold bars or utensil etc. 2 Opinion: Only minted coins such as dirham or dinar may be classified as money. No other form of silver or gold, including utensil of gold or silver or gold 2 bars, etc may be classified as money. Both these opinion exclude Fuloos, or
nd st

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" : ( ) ) / (" In the context of discussion utensils of gold and silver has also been categorized as cash and here also the same point is being established. : )( ) / ("
2

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12 the coins minted from metals other than gold or silver such as copper, from the definition of money. Hence only the mentioned items in the two opinions are considered to be money. 3 Opinion: Though gold and silver are the real, accepted forms of money, 1 certain other items such as Fuloos may be considered the medium of exchange. However according to this opinion, only the items which fail to conform to the primary conditions necessary for qualifying as money are excluded from the definition of money. Islamic jurists at present are divided between these three opinions. The first opinion incorporates within the definition of money all items which are made of gold and silver whereas the second opinion limits this definition to dirham and dinar only. Finally, Fuloos, coins made with bronze and copper and not gold and silver, are also included in the definition presented in the third opinion. However, modern economists are only interested in the definition presented in the third opinion.
" : : " : " "()/ The above statement indicates that dirham and dinars are the only exclusive forms of cash. ( ) ": : " "() / ( ) ": : " () 1 ( ) : " ( : ) ()/ ( ) " : : " () /
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13 Islamic experts have differing views on the subject. According to Mufti Taqi Usmani, Anything which is specifically used as a medium of exchange, is 1 measureable, and can store value is called Zarr . Professor Crowther also states, A monetary unit is any object used openly as a medium of exchange and is capable of measuring and storing value. Only then can it serve the purpose of 2 Money. Within the same context Dr. Khalid Adnan Turkamani says, Any object can be termed as Zarr which is commonly used as a medium of exchange and can 3 be used as a yardstick to determine prices; it can be anything and in any form . Kawal Krishen states, Money may be defined as the mea ns of valuation and of payments as both the unit of account and the generally accepted medium of 4 exchange.

CHARACTERISTICS OF MONEY
Though the above opinions, definitions and expert views on money differ, they share certain common characteristics related to money or Zarr. Primarily money or Zarr is:

1. A MEDIUM OF EXCHANGE
Mankind always had certain needs not all of which could be fulfilled by the items in their possession. These needful items may be owned by others who may not want to exchange these items with things that the other party has in the form of commodities. Hence a generally accepted medium of exchange was required in societies. Therefore Allah SWT created gold and silver as the medium of exchange; an attraction to these precious metals has also been instilled in man by Allah SWT. Gold and silver have hence been prized since the inception of human societies as a medium of exchange. Over time, gold and silver exchange evolved into paper money, checks and credit cards. This in turn has widened the concept of Zarr as well.

1 2

Islam and Contemporary Economics and Trade, Idara Al-Marf 14, 1st Ed, 1419 Hijri Introduction to Money and Banking by Sheikh Mubarak Ali, Research Scholar, Oslo University, Norway, Rahber Publisher Karachi, 1st Ed, 1991 3 ( ) 4 Modern Economic Theory, by Dewett Kewal Krishan, Delhi, India, 18th revised edition, 1983. Page409

14

2. WIDE ACCEPTABILITY
Since it is established that societies have always required a medium of exchange, it is imperative that this medium of exchange also has a wide acceptability in order to be fully functional and effective. This functionality and effectiveness is related to the willingness of the masses to conveniently exchange goods and commodities with this medium or monetary unit.

3. A MEASURE OF VALUE
Money or Zarr constitutes a yardstick to establish the value of commodities since in the absence of any such yardstick; this value would be left to the personal judgment of every other person according to his or her advantage. It is hence imperative to have a standard measure of exchange to accurately value commodities in comparison with other items.

4. A MEANS TO STORE VALUE

The value of all commodities depreciates with age and it is not possible to exchange them for the same value over time. On the contrary, monetary units are a secure means to store value, apart from depreciation from falling or rising currency rates, as compared to other commodities. Therefore the use of money ensures a security of value and despite monetary inflation, it can be used to 1 obtain any required commodity. To summarize the discussion so far:

--------------------------------------------------------------------------------------- An Introduction to Money and Banking Islam and contemporary Economics and Trading Contemporary Debates on Jurisprudence, by Moulana Mujahid ul Islam Qasmi, Karachi IdarahtulQuran ul Uloom, ul Islamia, Vol-2 The Theory of Money and Credit.Mises, Ludwig Von Mises ) ( ) (

1. 2. 3. 4. 5. 6.

15 Economists and jurists unanimously accept gold and silver to be a form of money. Certain class of economists views gold and silver to be medium of exchange only in the form of dinar or dirham. Certain jurists accept all forms of gold and silver as money. Certain jurists accept Fuloos to be an accepted form of money. Contemporary economists have broader views on money, considering gold, silver and Fuloos as money. Certain contemporary jurists concur with the opinions of modern economists viewing them as being concurrent with the Shariah laws.

THE NATURE OF MONEY

Current debates and discussions on money are especially more important given the erroneous conceptions which have emerged about the fundamental nature of money. These misconceptions have in turn paved the way for justifications on the wrongful legitimacy of interest or usury, the amount charged on loaned money. For instance the modern day gurus of the business and financial industry justify interest by claiming that money is a form of tradable commodity. This justification is based on the assumption that just like it is legitimate for merchandise and commodities like cloth, vegetables, property or furniture etc. to be exchanged for a mutually agreed price; therefore it is also legitimate to trade money at a value greater than what is owed. This assumption in effect legitimizes usury or interest. In cases where interest is charged on loaned or owed money, money is treated like a commodity where all rules applicable on the exchange of commodities are also applied to it. Here it is important to discuss the general characteristics of commodities which are broadly classified into consumption goods and production goods. The term consumption goods refers to items necessary for human upkeep and include food, clothes etc. Production goods are tradable items which may be rented and leased for the purpose of profit. Money is considered a production good only for people who consider it a commodity eligible for rent or lease whereby they seek to earn profit or interest through money exchange. Viewing money to be a production good is one of the major reasons why interests or markups are seen

16 1 to be justified with no religious or social implications whatsoever. Needless to say , this view of money being a production good is rejected as being absurd and baseless by not only the wider majority of Islamic scholars but also contemporary economists. According to Kawal Krishen Dewett in Modern Economic Theory, How money differs from goods? Goods are mainly of two types: consumer goods, and producer or capita goods. It (money) cannot be consumed as such. There was a time when some commodities served as money and there are exceptional circumstances in modern times too, e.g. in Germany in 1945, when there was hyperinflation, cigarettes served as money. But normally it is not an ordinary co nsumer good Money cannot be regarded as a capital good either. Capital goods, like machines and raw material, help in manufacture of goods by their physical

The Historic Judgment on Interest by Usmani (Justice Muhammed Taqi Usmani) Karachi, IdaratulMaaraf, 1st edition, 2000 A.D, P-93: ''The commodities are classified into the commodities of first order which are normally termed as 'consumption goods' and the commodities of the higher order which are called 'production goods'. Since money, having no intrinsic utility, could not be included in 'consumption goods' most of the economists had no; option but to put it under the category of production goods.'' The Theory of Money and Credit, by Ludwig Von Mises, Liberty Clissics Indianapolis, 1980, P-95, Ch:5, Part-1: ''It is usual to divide economic goods into the two classes of those which satisfy human needs directly and those which only satisfy them indirectly - that is 'consumption goods , or goods of the first order, and production goods ,or goods of the higher order ." Introduction to Economic Principles, Dr.A.N Agarawala,,Katab Mahal 1983. "Robertson defines money as a commodity which is used to denote anything which is widely accepted in payment for goods or in discharge of other kinds of business obligation." ( ) )( )( ) (

17 transformation.it performs entirely a different function. Money is an 1 exchange good, and useful only in an exchange economy. In short, Dewett identifies consumption goods and production goods as two commodities. Consumption goods can be considered money only if they do not fulfill direct human needs. On the same note production goods do not perform the function of money. For instance raw material and machines are used to manufacture different products. Since these functions cannot be performed by raw money, money is a medium and a means of exchange in these instances. Professor Muhammad Manzoor Ali writes in his book Book of Economics: Money i.e. paper notes or coins cannot be classified directly as consumption goods. Money cannot fulfill any basic human need directly as it cannot be used as food, clothes or shelter. Similarly paper notes and bank checks cannot be eaten or worn. Any commodity can be classified as a monetary unit only if any of the following circumstances prevails: a) either the society is primeval and backward or b) Its war like situation as it was in Germany where cigarettes were used as money due to economic 2 circumstances developed after the Second World War Professor Ali further states, Money is also dissimilar to production goods, as it differs in characteristics. That means money is useful only due to its quality of being a medium of exchange. In his book The Theory of Money and Credit Ludwig Von Mis es has devoted an 3 entire chapter titled Money on Economic Good to dismiss the erroneous classification of money as a commodity and to justify this flawed concept. In conclusion, he presents three different classifications of money; a means of production, consumption goods, and a medium of exchange. For the sake of argument, Von Mises agrees that when money is classified and treated as a

1 2

Modern Economic Theory,P:409 Book of Economics, by Professor Muhammad Manzoor Ali. Published-1986, page 116, Ali Book House. 3 The Theory of Money and Credit ,P:95

18 production good then, as also pointed out by Adam Smith, it should be referred 1 to as dead stock or an object with no direct use in production . Many other books of economics discussing the functions and characteristics of money do not consider money to be a production good. On the contrary it is termed as a medium of exchange.

OPINION OF ISLAMIC SCHOLAR ON THE NATURE OF MONEY

Concurring with a wide number of economists, Islamic scholars view the idea of money being a commodity as baseless and problematic. Though this idea is yet to be counteracted at the level it demands, the subject has repeatedly been discussed at the secondary level. For instance The Historical Judgment on Interest is a renowned thesis written for the Supreme Court of Pakistan by Justice (Retired) Mufti Taqi Usmani. In the thesis Mufti Usmani thoroughly negates the concept of treating money as a commodity both in the Islamic and the contemporary modern economic context. In short, three fundamental differences between money and commodities are presented in Mufti Usmanis work: Firstly, money cannot fulfill direct human needs but is a medium of exchange for the services and goods which can fulfill these needs. Secondly, different varieties of similar commodities differ in prices based on their quality. For instance eatables which are close to expiring are cheaper than similar fresh products. However, money, a medium of exchange and a store of value, does not have this characteristic. Hence all notes of similar denomination will retain their denomination regardless of how old they are (unless declared falsified by the issues authority such as government). Thirdly, when exchanging different commodities such as property, machinery or vehicles, it would be a violation of agreement if the delivered goods are not of the promised quality. For instance an exactly similar car might not be acceptable to the buyer if it has a different registration number. Monetary units do not have this disadvantage; two paper
1

The Theory of Money and Credit: "This is the complete justification and the suggestion put forward by Keynes is that economic goods should be divided into means of production, objects of consumption, and media of exchange". Page-502 (Cont ) "Regarded from this point of view, Adam Smith would call these goods as "dead stock, which produces nothing". Page-102

19 notes with different serial numbers and print dates will have the same value and can be used to purchase any required commodity. This discussion clarifies the point that money cannot be considered a commodity and its use is restricted to a means of exchange only. Money was described similarly by Sheikh-ul-Islam Ilama Ibn Tamiya many centuries ago: " " Unlike commodities, dirham or dinar do not possess any intrinsic value of their own, rather they are means of mutual exchange and act as a 1 yardstick to measure or determine the prices (of commodities). In this observation Ilama Ibn Tamiya draws a clear distinction between money and other commodities strictly stating money to be medium of exchange as opposed to other items of use. Money is devoid of intrinsic value because it is not a direct means of satisfying human needs. Sheikh Tamiya further states: " " Money doesnt have any intrinsic value; rather it is a means to purchase commodities. If money is classified as a commodity, then it will deprave 2 the transactions people intend to make. A detailed discussion on the inherent nature of money has also been presented by Imam Ghazali: The creation of dirhams and dinars (money) is one of the blessings of Allah. They are like stones having no intrinsic usufruct or utility, but all human beings need them, because everybody needs a large number of commodities for his eating, wearing etc, and often he does not have what he needs and does have what he needs not.. Therefore, the transactions of exchange are inevitable. But there must be a measure on
1 2

)( ) ( ( ) ( )

20 the basis of which price can be determined, because the exchanged commodities are neither of the same type, nor of the same measure which can determine how much quantity of one commodity is a just price for another. Therefore, all these commodities need a mediator to judge their exact value. Allah Almighty has, therefore, created dirham and dinars (money) as judges and mediators between all commodities so that all objects of wealth are measured through them and their being the measure of the value of all commodities is based on the fact that they are not an objective in themselves. Had they been an objective in themselves, one could have a specific purpose for keeping them which might have given them more importance according to his intention while the one who had no such purpose would have not given them such importance and thus the whole system would have been disturbed. That is why Allah has created them, so that they may be circulated between hands and act as a fair judge between different commodities and work as a medium to acquire other things. So, the one who owns them is as he owns everything, unlike the one who owns a cloth, because he owns only a cloth, therefore, if he needs food, the owner of the food may not be interested in exchanging his food for cloth, because he may need an animal for example. Therefore, there was needed a thing which in its appearance is nothing, but in its essence is everything. The thing which has no particular form may have different forms in relation to other things like a mirror which has no color, but it reflects every color. The same is the case of money. It is not an objective in itself, but it is an instrument to lead to all objectives So, the one who is using money in a manner contrary to its basic purpose is, in fact, disregarding the blessings of Allah. Consequently, whoever hoards money is doing injustice to it and is defeating their actual purpose. He is like the one who detains a ruler in a prison And whoever effects the transactions of interest on money is, in fact, discarding the blessing of Allah and is committing injustice, because money is created for some other things, not for itself. So, the one who has started trading in money itself has made it an objective contrary to the original wisdom behind its creation, because it is injustice to use

21 money for a purpose other than what it was created for. If it is allowed for him to trade in money itself, money will become his ultimate goal and will remain detained with him like hoarded money. And imprisoning a ruler or restricting a postman from conveying messages is nothing but injustice. (Text taken from the translation of The Historic Judgment on Interest by Mufti Taqi Usmani) Further elaborating upon this idea, Imam Ghazali states, " 1 " or To use money for the purpose not intended for its creation is vicious. Hence the treatment of money as a consumable item and to turn it into an object of trade or commodity is a cruel injustie to society. Money should only be used for the purpose for which it was created. It can be concluded from Imam Ghazalis observation that dirham or dinar is a method of standardizing and measuring the value of objects. Money such as dirham and dinar does not have any intrinsic value nor is it a tradable good. According to Ghazali: "" Anyone who will treat dirham and dinar as a tradable object will violate 2 the very purpose its made for. Though it may appear here that there is an absolute restriction on the trade of money for money, the exchange of dirham and dinar is permitted according to the rules of Shariah even if there is a difference in the absolute value of the two currencies. This ruling raises the issue of the legality of trading dirham and dinar with a difference of value such as 100 dirham for 90 dirham. This point has been elaborated by Imam Ghazali as well: Dirham and dinar are created for the sake of exchanging them for items needed, however its possible that there may be different forms of coins or notes available, (like dirham is different from dinar), so as to facilitate the exchange of a variety of items. Because each dinar can be exchanged

1 2

---------------- --- )( ) ( Ibid, 92

22 for several dirhams which makes it easier to fulfill minor needs intermittently, henceforth restriction of such an exchange can hinder the exchange process. More simply, lets assume that a person desires to have a liter bottle of cold juice in the middle of a hot afternoon. This bottle is available for Rs. 25 but the person only has a Rs. 100 note. This bottle would be easy to buy if the shopkeeper could offer the person change for his Rs. 100 in denominations of Rs. 5, 10, 20 and 50. However if the shopkeeper does not have this change, the person would either have to tolerate his thirst or suffer the loss of Rs. 75. Imam Ghazali calls this common sense where he states, We have not disallowed the exchange of dinar for dinar, only because its absurd and unintelligent to do so. No sane person will intend to exchange a dinar for dinar, henceforth its irrelevant to impose any restriction. For this reason its declared permissible to sale or purchase dirham for dirham or dinar for dinar (only if done on the spot and in 1 equal quantities). If judged from the explanation provided by Imam Ghazali, all transactions such as those indicated above fall within permissable Shariah rulings and the idea is merely to facilitate the usage of dirham and dinar as a means of exchange within the boundaries of Shariah law. The point is clarified further by the opinion offered by Mufti Misr Muhammad Khatir on the difference between money and commodity: It is not appropriate to compare the nature of money with that of any asset or property as it is prohibited by the rulings of Shariah and jurisprudence. This is because money is used as a determinant of prices ( )of commodities, hence to charge rent over money (given as credit) is erroneous. Ijara (leasing) is in fact ( an agreement or contract for the sake of earning a profit/usufruct) that requires property or corpus ( )to be returned back, which is not possible in case of money (since 2 the borrower has to spent it rather to fulfill his needs).

1 2

------------------------------------------------------------------------------------------------------------)( ----------------------------- ----- ) ( ( )

23 Ilama Kasani confirms the stated viewpoint in one of his book: " " It is not permissible to lease dirham or dinar along with their lesser units, because it is not possible to extract benefit or usufruct ( )from them until and unless they are not spent; on the contrary leased asset or property offers direct benefit to the lessee. Dr. Hamd Misri has also shed some light on this issue, he states: The difference between renting a property and renting money is very clear (the difference is of two types). When a property is rented, corpus ) (remains, and the renter gets the benefit. Definition of Ijarah in context of Shariah is also the same (however this is not possible in case of money). Furthermore the custodian of the subject matter is the leaser instead of the leasee, however in case of money the custodian is the 1 debtor (when loaned) instead of the creditor. To surmise the discussion so far, money and commodity are two different and exclusive entities and this view has been confirmed by a number of economists and religious scholars. Henceforth money will be treated in a class by itself and apart from commodities and with rules and regulations which differ from commodities. In short, money will be viewed only as a medium of exchange to be used to facilitate the trade of commodities. Under no circumstances can money be traded whether by renting or for earning interest. Viewing money as a commodity and treating it as such is likely to create a imbalance in the economic system of any given society.

FORMS OF MONEY
The Islamic jurisprudence categorizes money into two main types ; natural money and artificial or fiat or customary money. As the name implies, natural
---------- ------------------------- ( ) ( 2 The Rule of Paper Notes and Currency by Justice Mufti Muhammad Taqi Usmani , Memon Publishers, Karachi, 1st Edition, 1993.
1

24 money is money which has a physical form such as gold and silver. Other items cannot come under this category despite having all necessary properties mandatory to qualify as a medium of exchange. Here it can be said that Allah has created gold and silver specifically to serve as a medium of exchange. All other mediums of exchange besides natural money are artificial or Fiat Currency. These include sea shells and rice, which was used as money in ancient times, and modern money forms such as checks, money orders, bank notes and credit cards.

IMPORTANCE OF GOLD AND SILVER

A logical question which can be raised here is why gold and silver are deemed natural money when even more precious minerals and metals exist? This is so because of special cumulative characteristics and qualities assigned to these two metals by Allah SWT which are not found in other equally or more precious metals and minerals on earth. These qualities are as follows: 1. 2. 3. 4. 5. 6. It is easy to mold or forge gold and silver into any form with minimal effort. It is equally easy to segregate or blend the two. The taste and odor of gold and silver remains consistent regardless of age and usage. The chemical properties of the two metals resist corrosion even if left buried in sea water or ground for indefinite periods of time. A contamination in the chemical composition of the two metals can be easily detected. Gold and silver are dense metals which occupy less space.
( ) In this book, a statement from Shah Wali Allahs book Hujjat-ullah Al-Balagha has been quoted, which says: " ) "( : " :9042 )9049( " )912,990 /2( ( )

7. 8. 9.

25 The decorative properties of the two metals are uniquely exclusive to those found in other value comparable metals. Gold and silver are scarce hence considered more valuable. There is an easily discernible similarity between the byproducts of the 1 two metals such as gold of varying carats can be easily distinguished.

Since no other mineral or metal on earth comes close to sharing these properties and qualities found in silver and gold, these two are hence termed as natural money.

DIFFERENCE IN MONEY AND WEALTH

Ilama Ibn Najeem has provided the following definition of asset value:
2

"" Anything which is in the owner ship of any individual is called wealth; let it be money, grain, cattle, property or anything of value. According to this, money is a form of asset. Ibn-e-Manzoor similarly states: "" Wealth is anything which you own.
3

DIFFERENCE BETWEEN MONEY AND CURRENCY

The definition of money or Zarr has now been established with clarity. However, not all forms of money can be legally enforced even though they might theoretically fulfill the requirements of being considered money. These include prize bonds and checks. If creditors such as a bank do not wish to accept these

-------- ---)40 ( ( ) 2 ------- ) 204 ( 9091 3 ----------------------------------- --- ) ( )224/94( 9041 )241/4( 9092 ) 9222 ( )49 (9044 )(

26 forms of money for any required transaction such as repayment of loans, they are not bound by the law to do so. To the contrary, currency such as Euros, Dollars or Rupees is a legally enforced government tender. This legal enforcement binds the citizens of the country to accept and make payments to creditors such as the banks and lessees using this legally accepted tender. It can therefore be concluded that currency is a special form of money which therefore makes it a special kind of asset.

EVOLUTION AND USAGE HISTORY OF MONEY

The history of money starts with the barter system used in ancient times for the exchange of goods. In the barter system people exchanged items they possessed with the items they wanted to acquire from other people. As can be imagined, the barter system was fraught with setbacks and laced with difficulties. A common disadvantage was the different perceptions that people had regarding the value of an item which commonly caused the bartering parties to compromise on inequitable exchanges. This naturally led to squabbles where the parties later felt that their items of exchange were far greater in value than what they were exchanged for. As economies developed and civilizations got more established, it was realized that the barter system was not a good way to trade or do business. The barter system was hence the first step towards the evolution of modern economies and paved the way for the use of commodities as the medium of exchange.

THE COMMODITY MONEY SYSTEM

The commodity money system was the next step in the development of monetary system and was primarily designed to resolve the disadvantages associated with the barter system. As the name suggests, the system used different types of commonly used and needed commodities as the medium of exchange. These included wheat, grains, leather, salt and pieces of iron.

THE RISE AND FALL OF METALLIC MONEY SYSTEM

The primary disadvantage associated with the commodity money system was the difficulty of transportation. As populations grew, so did the number of daily transactions creating a challenge for people to do their business using this

27 system. The alternate solution, the next step in the evolution of money, was to find a means of exchange which was mutually acceptable and easy to use. Gold and silver emerged as the metals which fulfilled the needs of the time and gradually became popular as the standard to judge the price of commodities regardless of the geographical distances between societies. This system came to be known as the metallic money system. However the metallic money system was not devoid of pitfalls either which eventually led it to change furher. 1. The Informal Era of Gold Money: At the start of the metallic money system, only items of gold and silver in varying shapes and sizes, including jewelry and utensils, were used in transactions. The determinant of value in this exchange was the weight of the gold and silver items. The Formal Era of Gold Money: The next era of gold money was the formal era which emerged in the form of minted gold and silver coins. The popularity of gold or silver money differed between different regions. The coins were standardized on account of size, weight, and quality of metal and were embossed with the seal of the manufacturer as a form of authentication. The value of these coins was equivalent to the actual content of gold and silver in them. For instance a 4.25 g, 22 carat dinar was interchangeable with any gold item with a corresponding weight and value. This system was later named the gold standard and th was first implemented in China in 7 BC. Though the mention of this fact may seem redundant at this stage, it forms a basis for a later discussion on the intentional debasement of the monetary unit in the latter stages of the evolution of money. The formal era of gold money gave people the freedom to use coins, gold bars, jewelry and other items as a dependable means of conducting domestic and international trade. Governments also encouraged citizens to convert their gold items into coins or from coins to other items. Bimettalism: Many countries started making coins by combining gold with silver rather than with just gold alone. This necessitated the establishment of an exchange rate between the two coinage systems where the gold was regarded as the main currency and the silver was

2.

3.

28 seen to be its fractional unit. This system was referred to as bimetallism. The biggest drawback of the system was the dissimilarity of the exchange rate between gold and silver in different regions. For example, in America if the exchange rate was 1:15 i.s. single gold coin was exchanged for 15 silver coins. However at the same time if in Europe the exchange rate was 1:15.5 or 15.5 silver coins for every gold coin. For obvious reasons, the traders would then start to collect gold coins from America and exchanged them in Europe for a greater number of silver coins to be brought back and exchanged for gold coins. In other words if 30 gold coins from America could be exchanged for 465 silver coins according to the 1:15.5 European exchange rate. In turn, exchanging these 465 silver coins in America yielded 31 gold coins at the 1:15 exchange rate. Simply put, an extra gold coin could easily be earned with the trade of 30 gold coins. This difference in exchange rate led to an abundance of silver coins in America. In 1834 the American government sought to resolve this imbalance by revising the existing exchange rate to 1:16 or 16 silver coins for every gold coin which started an inflow of gold coins back into the country. 4. Gold Backed Paper Receipts: The increase in the use of gold and silver coins made it obvious that this was a far easier method of trade than lugging around heavy or cumbersome commodities. But with this came the new fear of theft where affluent individuals were reluctant to carry around large amounts of gold. A solution to this dilemma was offered by goldsmiths and money changers in the form of a service which would hold large deposits of coins for a fixed fee with a receipt provided to the depositor as acknowledgement of the transaction. This was the start of deposit banking in Europe. With time, people got comfortable with this safe, reliable and theft proof system as they knew that they could redeem these receipts at respective goldsmiths. Consequently, the dependence on these receipts increased to an extent where these replaced gold as the primary method of exchange. No longer were these receipts only a means of exchange for the affluent but even the common citizenry started to use these for

29 trade in market places. These receipts were the first form of paper money. At the start of the receipt system there were no officially established forms or formats of these receipts. The physical nature of the receipts depended largely upon the creativity of the issuer. There were also no legal implications which bound people to use one format over another. The backbone of the entire receipt system rested upon the level of trust that people had in the gold smith or money changer. 5. Legal Tender: As the gold backed receipts gradually got firmly established into economies, they started to gain a standardized from during the early 1700s. The Stockholm Bank of Sweden triggered this standardization by issuing paper notes or currency notes backed by gold or silver which could be exchanged whenever the holder desired. The notes or currency issued by any bank was equivalent to the value of gold in the bank vaults. This practice enabled the banks to honor all the receipts even if they were submitted simultaneously and posed no problems to the bank or the clients. The Stockholm Bank of Sweden kept its gold in the form of bars, hence the term Gold Bullion Standard. With common and widespread usage, the receipt system was legalized by the governments of England and Wales in 1833 and was given the name legal tender. Under this system citizens were bound by law to accept even bank loans of legal tender or banknotes just as they would accept gold or silver coins. Commercial banks were later prohibited from issuing their own banknotes and the responsibility was shifted to the Central Bank. 6. The Dawn of Debasement: There were many instances, such as war, where governments would experience a shortage of funds for financing the military or rebuilding infrastructure destroyed during the war. Desperate to meet this shortage, many governments printed banknotes exceeding the value of actual gold in the bank without public knowledge. This naturally increased the number of banknotes circulating in the economic structure many times more than the value of gold in the

30 banks. What gave the banks the confidence to continue the practice was the assumption that not all depositors would claim their holdings at the same time. Since the public was never taken into confidence over this decision, they continued to believe that their banknotes were backed by gold and were redeemable at any time. The reality however, was to the contrary. According to the norms of the time, these deceitful banknotes were referred to as fiduciary money. As governments got concerned with the potential repucussions of this activity, they had only one option; either increase the amounts of gold coins, bars and rods by reducing the size of each unit without reducing their face value, or mix them with another cheaper metal to produce the required amount of gold, even if impure, in order to acknowledge the surplus receipts produced to fund the governmental expenses. This practice is referred to as debasement due to which the intrinsic value of the gold in bank vaults dropped dramatically as compared to their face value or the value printed upon it. These altered gold coins were named token money since the value indicated on these new coins only represented in name the intrinsic value of the original, unaltered coins. 7. The Era of the Bank Runs: The circulation of fiduciary money kept increasing and eventually banks realized that it was impossible for them to acknowledge gold backed receipts. They also accepted the fact that it was only a matter of time before the public apprehended this guile and started demanding their gold against their banknotes from the Central Bank. This phenomena is known as the bank run . The governments fears were not unfounded and soon the incensed public was creating bank runs everywhere. Ironically, the bank run phenomenon is not a thing of the past and still continues today. The solution that banks devised to counter bank runs was the imposition of strict conditions on all those attempting to redeem their notes. The height of these conditions was seen in England where a complete ban was placed on these redemptions after the end of the 1914 war. The counry relaxed these conditions in 1925 for those who had banknotes worth 1700 pounds . However this constituted a very small section of

31 the population, leaving the majority no other option but to keep the economic engine running and eventually accept the status of banknotes as a legal form of money. Since banknotes retained their purchasing power and were already in common and wide usage, they continued to be accepted as the alternative, even if begrudgingly, for silver and coins in matters of trade. 8. The Point of No Return: In 1931 the Parliament of England completely abolished the Gold Standard along with the 1700 pound limit for redeeming bank notes. All individuals were hence legally bound to use banknotes for business and trade. These conditions however applied to people within the boundaries of England only and were not applicable on countries holding the foreign reserves of other countries. For instance, England was bound to acknowledged redemption request or the exchange of notes for gold against any amount of pound sterling notes presented by the German government and vice versa. This system came to be known as the Gold Exchange Standard. The Internationalization: A system of Special Drawing Rights or SDRs was enacted in 1947 which sought to replace gold and silver in large scale international transactions. This system eliminated the cumbersome process of physically transferring gold from one country to another. The need for the creation of the system was felt because under a strict international gold standard the quantity of gold around the world was fixed and the economies of the participating members of the IMF as an aggregate were continuously expanding. SDRs was seen as a way to increase the supply of the basic unit proportionately and this paper gold became the credit that the countries with a balance of trade surpluses could draw from the nations with balance of trade deficits. In reality, paper gold was but an accounting transaction within a ledger of account and grew in popularity because it eliminated the logistical and security issues related to the shipment of gold back and forth between countries for settling their national accounts.
1

9.

Special Drawing Rights. International Monetary Fund. http://www.imf.org/external/np/exr/facts/sdr.HTM

32 10. Bretonwoods Agreement: The Brettonwood Agreement was crafted during the Second World War in 1944 and was put into effect a year later. Besides taking care of a number of other festering international issues, the Agreement resulted in the creation of the International Monetary Fund which aimed to stabilize exchange rates between currencies and to act as any countrys lender as a last resort. A key component of the Bretton Woods Agreement was the requirement that all countries peg their currencies to a certain amount of gold. In practice, most currencies were pegged to the U.S. dollar, which was itself pegged to gold. This helped the IMF accomplish its stated goals to stabilize currencies that had experienced a large amount of wartime inflation. The Agreement worked relatively well until the United 1 States unilaterally depegged from gold in 1971. The Gold Exchange Standard started to see its decline after 1971 as the US dollar ran into serious crisis. This was during the government of the French President Charles de Gaulle when France started to reduce its dollar reserves, trading them for gold from the American government. This was a serious blow to the U.S. economic influence abroad. This economic setback set into motion by France was further exacerbated by the Vietnam War and the Great Society expenditures proposed by the th 36 American President Lyndon Johnson. In an attempt to ease this overwhelming fiscal strain, President Richard Nixon decided to eliminate the fixed gold price in 1971, leading to the gradual disintegration of the 2 entire system. The result of these modern economic maneuvers was the abolishment of gold as a medium of exchange. In turn, it was replaced with paper notes to such as extent

Joerges,C., Straith, B., Wagner P. (2005) The Economy as a Polity: The Political Constitution of Contemporary Capitalism (Psychology Press, 2005)
2

Eichengreen, B., Flandreau, M. (1985) The Gold Standard in Theory and History (Psychology Press, 1985)

33 that in present day and age gold has little to do with the established monetary system of any country. Fiduciary notes, legal tenders or paper notes are now the only forms of money used in business and trading activities. These notes, now representing a fictitious purchasing power, are no longer backed by gold and silver as they were at the start of their conception. However it would be wrong to say that this system has fully matured, stabilized and is accepted singularly by the masses. This is contrary to the gold and silver system of the previous ages which was not only mature and stabilized in its usage but was also generally accepted as the system in monetary dealings. At present that are numerous countries demanding a reversion to the older economic system backed by gold rods or bullion. There are even demands for the use of gold bars and coins as a medium of exchange. Most countries today not only retain gold in their portfolio of currency reserves, but struggle to increase this amount due to the widespread perception that gold will shield them from the potential turbulences in the present day system of fiduciary currency. These gold reserves, whether they are coins or gold backed notes, however remain legally detached from the direct 1 usage in the monetary system of any country at present.

THE EVOLUTION OF MONEY AT A GLANCE :

1 Stage: The Barter System, where commodities were exchanged for commodities. nd 2 Stage: The Commodity Money System, where different cereals were used as a medium of exchange.
1

st

------------------------------------------- ) ( 9042 * * 92* 92 * 994* )901( 9092 * * 14*

Introduction to Economic Principles by Dr.A.N. Agarawala, page-314 Modern Economic Theory by K.K Dewett, Page-416

34 rd 3 Stage: The Metallic Money System, where gold and silver was classified as money. a. At the start of the system, gold and silver did not have any standardized form but were exchanged in bits and pieces according to weight. b. The next stage was the emergence of gold and silver coins standardized on account of weight and content of gold or silver. The face value of the coin represented its intrinsic value. This was referred to as the Gold Specie Standard. c. Bimetallism emerged next where coins made with gold and silver with an exchange rate between them started being used in different countries. d. The transfer of gold between parties for the purpose of trade naturally fanned threats of theft related to these transfers. Hence money changers and goldsmiths offered to store these coins for the customers in lieu of issued receipts. With time, the ease of use of these receipts increased their popularity on the larger scale as a standard medium of exchange in markets. e. These receipts eventually evolved in the form of banknotes issued by commercial banks. These banknotes were in fact standardized forms of gold backed paper receipts which could be redeemed any time for the amount of gold they represented. The gold specie was in the form of rods and were referred to as Gold Bullion Standard. f. The Central Bank was made solely responsible for issuing bank notes in 1833. The term Legal Tender was given to these legalized banknotes. g. During pressing times such as during war when governments felt that they were unable to meet their expenditures they started to publish more paper notes than the gold backing them. These notes were referred to as Fiduciary Money. In an attempt to keep a cover on this act, gold and silver coins were de-purified by mixing with cheaper metals. This reduced their intrinsic value as compared to their face value. This money was called Token Money. h. With time and as expected, fiduciary money became more and more common. Hence their conversion to gold, previously allowed before, was prohibited by law.

i.

j.

35 Though by 1931 this conversion was completely banned for the public, numerous governments continued the conversion of banknotes to gold until 1971 under the term Gold Exchange Standard. The use of gold for international trade was suspended in 1971 and its use as a medium of exchange for local and international transactions was completely abolished. Therefore no currency of the world issued since 1971 is backed by gold. This is not to say that the precious metal has diminished in value in any way; gold is still sought and retained as an essential part of monetary reserves even if it no longer has the legal status to back currencies.

VARIOUS STAGES IN THE HISTORY OF MINTING

Money was not present in the shape of coins before or after the advent of Islam. Historical evidence indicates that though before Islam dinar from Heraclius () and dirham from Iran (Baglia and Hameria) were circulating in Makka, they were in the form of bars. According to Ilama Blazaree: " " Before the advent of Islam, dinar from Heraclius and dirham from Iran (Baglia and Hameria) were brought to Makkah, and people use bars as 1 medium of exchange. After Islam, this trend was continued by Prophet Muhammad (SAW) and according to authentic evidence, Hazrat Fatima (RAA) was given a dowry of 480 2 dirhams Kasarwi by Hazrat Ali (KAW) at the time of their wedding or Nikah. These currencies were also used for the purpose of Zakat and tax collection and were the prevalent mode of exchange in other financial transactions as well. Prophet Muhammad (SAW) did not find it necessary to change this system and hence the use of gold and silver bars continued. A Hadith in this context states:
----------------------- --------
2 1

36 " " Gold must be sold for gold in equal quantities, similarly silver must be sold for silver in equal quantities. If the quantity exceeds, then it will be 1 termed as Riba (Usury). Not only were gold and silver bars a common medium of exchange in Arabia at the time but were similarly used by the Romans and Persians as well. This format of currency continued unchanged in Arab until the early period of the rule of th Hazrat Omar (RAA) in the Arabian peninsula. It was in 18 hijri, that Hazrat Omar introduced dirhams with inscriptions of Kasravi ( ) which resembled a donkeys head, hence the name dirham Baghlia. The dirhams were embossed with the name of their city of origination such as Damascus or Balbak. It would therefore be correct to acknowledge Hazrat Omar (RAA)as the first person to introduce a new coin or medium of financial exchange in the Islamic world. According to the historian Baleer however, evidence also indicates that Khalid Bin th Waleed (RAA) had introduced a coin in Tabaria in 15 hijri, or even before the introduction of dirham Baghlia by Hazrat Omar (RAA). Later when Hazrat Usman (RAA) became governor or khalifa after Hazrat Omar (RAA), he too introduced a coin with the words Allah Is Great ( )embossed on it. The tradition of the introduction of new forms of currency within the Islamic world continued; Hazrat Mavia (RAA) introduced the dirham and Fuloos specifically for use in the Islamic peninsula and Hazrat Ziad (RAA) introduced nd dirhams during his rule in Kufa and Basra. Later rulers like Yazeed, Mavia the 2 and Marvan Bin Hukum did not take too much interest in amending the existing state or design of coins. New formats in coins were introduced later under the governance of Katri bin Fajat Al Kharji, Abdullah bin Zubair (RAA) and Masab bin th Zubair (RAA) in 70 hijri. It is believed that Hazrat Abdullah bin Zubair (RAA) was the first person to introduce the circular shaped dirham in the Islamic society. The Islamic monetary system was further refined during the rule of Abdul Malik th th th bin Marvan (65 to 86 Hijri). In 79 hijri he introduced coins specially designed for use in the Islamic financial system which were far superior in purity as compared to the previous coins. He then sent samples of this coin to Hajjaj bin Yousuf Al-Saqfi for distribution and adoption by all other states. It was also
1

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37 during the era of Abdul Malik bin Marvan that a supervisory board was created in order to monitor the manufacturing standards of the minting factories. Abdul Malik bin Marvan can hence be considered the first reformer ) ) of the Islamic monetary system. The standard and quality of coins were improved further and strict measures on production were enforced under Omar bin Huberah Wali Iraq during the governance of Yazeed bin Abdul Malik and Khalid bin Abdullah Bajli during the governance of Hashsham bin Abdul Malik and Yousuf bin Omar. The use of pure silver was initiated during these times hence making the coins produced under the brands of Huberee, Khalidi, and Yousufi the purest of all at the time of Bani Ummiya. These brands were superior to an extent where Mansoor Tukhraaj ( )refused to accept coins of any other brand. There were not only strict regulations on the adulteration in the silver content of the dirham but the act was declared a major crime. During the time of Hazrat Omar bin Abdul Aziz (RA), a man arrested for this crime was sent to jail. Similarly when Abdul Malik bin Marvan arrested a man on similar charges, he contemplated amputating his hands. He however relaxed the sentence and jailed the man instead. The next era in the evolution of money in the Islamic world was the Abbasid dynasty, a disturbed and turbulent time in Islamic history leading to the formation of various independent states. During this time the dirham was adulterated in various ways. For instance during the early period of the Abbasid dynasty fractions of copper and brass were mixed with the silver dirhams, or equal proportions of other metals were combined with the silver dirhams, or only a fraction of silver was found in the dirham as compared to the content of the other metals. The third form of dirham which contained only a fraction of silver as compared to some other metals was also referred to as sick money (). These were produced during the time of Zahir Bairqooq. In jurisprudence literature this currency is also called Dirham Beharja and Dirham Stoqa. According to accounts by Ibn-e-Mamatee, the content of silver in these th adulterated dirhams declined to such an extent by 300 hijri that pure silver dirham coins became a rarity in Egypt. At the same time in Syria, the dirhams in circulation contained less than a third of pure silver content. The name of Azdud-dolah stands out in the production of impure ( )dirhams loaded with copper which were refused even by traders. During the dynasty of Salahuddin,

38 silver and gold coins were almost impossible to find. It was also during this same period that dirhams and dinars started being produced with two third of silver or gold content and one third of other metal. This proportion continued into the reigns of Banu Ayub in Egypt and Syria. At this time in Paris dirhams and dinars were produced with a silver or gold content of nearly 70% with 30% being other metals.

HISTORY OF FULOOS
Fuloos ( )or artificial money refers to any currency made with materials other than gold or silver. Before the invention of Fuloos, wheat and other grains were used as a measure of value and common means of exchange. The next era of Fuloos was Fuloos made from copper. In Texal (Dar-ul-Zarrab) circular shaped currency was produced but was mostly used for petty transactions given its aesthetic inferiority. Evidence shows that the first artificial currency in Arabia was produced under Hazrat Omar (RAA) with the Bazanti ( )design. This currency, which was also branded, later became popular in many regions of Egypt. Later, artificial currency embossed with the date and place of minting th emerged, the earliest being from 90 hijri. This currency was aggressively promoted by Abu-al-Fazal of Kharasan or present day Afghanistan. He wrote of this money: "" We treat Fuloos just like silver is treated elsewhere. Not only did the currency Fuloos ( )gain a footing in Kharasan but different th forms of it became abundantly popular by 650 Hijri in a number of regions th around the world under different emperors. In 720 Hijri, Amir Mehmood standardized the form of Fuloos in circulation and eliminated the use of the dirham entirely. The popularity of the new form of Fuloos became the measure of the value of gold, hence attaining the position of a major currency form. By th 828 Hijri, Fuloos had become established and standardized to an extent that its

39 exchange rate with the dirham was announced at 1:12, or twelve dirhams for 1 every unit of artificial currency. This rate was later revised at 1:8.

LEGAL RIGHTS TO MINT COINS

According to the rules of constitutions, minting rights are only held by the governments of respective countries. The general public does not hold these rights and attempting to do otherwise is considered illegal and punishable by law. The question within the context of the text is whether or not these rights are awarded to the general public by the Shariah. Here the consensus of the majority of Islamic scholars is unanimous; as per Shariah only governments have the legal rights pertaining to minting. Individuals cannot produce coins equivalent to or different than the ones produced by the government. If a person attempts any such act, it will be considered an unlawful act and a display of hostility against the nation () . Two related incidents attest to this Islamic stand on minting. A person was brought to Hazrat Omar bin Abdul Aziz (RA) who had produced his own coins. Not only were his coins destroyed but he was also imprisoned. Similarly during the time of Hazrat Abdullah bin Marvan, a person who had minted his own coins was arrested. Though Hazrat Abdullah bin Marvan initially decided the punishment to be the amputation of his hands, the person was forgiven and imprisoned instead. According to Dr. Khalid Adnan Turkamani: : " " Imam Malik has declared this act (minting of coins by the general public) as aversive and said that it is explicit hostility ) )even if the minted coin is exactly similar to that produced by the emperor. And Hazrat Saeed Bin Masayab (RAA)narrated that if anyone other than the government produces a coin then it would be considered as hostility against the nation.

---------------------------------------------- ( ) ) ( ( )

40 The Hanafi school of thought relaxes this rule to some extent stating that privately produced coins equivalent to those produced by the state are acceptable on the condition that they not pose a threat of any kind to Islam or Muslims. However, in view of the fact that giving private parties a free authority to produce coins is likely to creae a disturbance and loss to economies, even if not a direct threat to Muslims, it is suitable to give only governments the right to 1 mint coins or to produce any other form of currency as per current norm.

FUNCTIONS OF MONEY IN SHARIAH AND ECONOMICS

The various functions related to money pertain to its use in society and the services that it provides. In order to understand the differences and similarities of the functions of money in Shariah and contemporary economics, both sources need to be consulted whereby it is revealed that the functions of money as outlined in Shariah are not dissimilar to those in contemporary economics. Economics discuss the functions of money by giving them separate headings while jurists divide these functions by discussing them as Zakat, interest or Riba and so forth. Hence in context, though certain functions of money have briefly been touched upon before they will be discussed here again.

AS A MEANS OF EXCHANGE
The most important function of money since its time of inception, despite changing forms, has been as a medium of exchange for the sale and purchase of goods and commodities in societies across the world. Before money was invented, people used the barter system where they exchanged one object for another. However the system was tedious and difficult and using money instead resolved all the disadvantageous related to bartering. Money can now be exchanged easily by any party or individual for desired services and products. It wont be wrong to say that money is like the blood in the economy which continually flows as services and goods are traded with it. Manufacturers purchase raw material and machinery and pay the laborers salary to work these machines. This money is used by laborers to buy desired goods produced by other manufacturers. This cycle keeps the economic engine running full speed.

----------- ) ( ( )

41

STANDARD OF VALUE
In any given economic system, money is the standard for the measurement of value of commodities. Just like wheat and other grains are measured according to weight and liquids like oil are measured in liters and gallons, the value of commodities is established with the monetary unit in terms of its price. For instance different radios are priced differently hence making it easy to judge the more valuable ones from those of inferior quality.

STORE OF VALUE
Money serves the purpose of storing savings for future needs and acts as a safety net for unforeseen circumstances. Money does not perish like other commodities like grain or cattle and does not depreciate in value. Apart from special conditions and monetary policies, there are little chances for the value stored as money to be lost.

STANDARD OF DEFERRED PAYMENTS

As the name indicates, deferred payments are the payments between different business transactions which are deferred to a future date. In accounting terminology, these payments are referred to as accounts payable or notes payable. Payments of loans in installments are also an example of deferred payments. Money is the optimal medium for deferred payments, under normal circumstances, since its value remains stable over extended periods of time. Contrary to this, the price or value of any other commodity is likely to fluctuate frequently in the market. According to Professor Manzoor Ali: "If money wouldn't have existed then production and sales of goods would occur like it use to in ancient times, thats why it is said that money is among those inventions which have contributed heavily in the advancement of human societies. It has acted as a catalyst in the 1 advancement of human civilization.

The Book of Economics, Vol-2, page 120 : :

42 Various Islamic scholars concur with this view. Allama Ibn-e-Al Arabi (RA) declares money as the standard of measuring value and a medium of exchange: To fragmentize dirhams and dinars (debasement) is a grave sin, because they are used as a standard of value of commodities, to estimate the worth of assets, and as a medium of exchange. Some scholars have even compared dirham and dinar with a judge in the court of law (as he has the capacity to do justice while measuring deviation and disparity among seemingly similar commodities or assets, like vegetable or fruits which 1 seems identical but have different weights). Allama Ibn-e-Al Hamam also acknowledges money as a medium of exchange, additionally stating: Both (Dirham and Dinar) have been created for the purpose of acquiring 2 various goods. According to Allama Sarkhasi: Money helps in determining the value of various items.
1

: : : : : : The Theory of Money and Credit by Ludwing Von Mises, page-41, Chapter-1 Modren Econmic Theory by Dewet, Page-412 Money performs five important functions: 1. It is serves as a medium of exchange. 2. It is used as a store of value. 3. It is standard for measuring values. 4. Money serves as a standard for deffered payments. 5. It transfers value." Introduction to Economic Principles, page - 315 "Money performs four main functions: common medium of exchange, A common measure of value..., Store of value, A standard of deffered payments....", 1 )(------- , ) ( , 2 -------------------------------------------------------------------------------------------) (

43 Allama Ibn-e-Al Qasim states: Gold and silver are a standard of value for all items. Allama Ibn-e-Taymiyya writes about Fuloos: That artificial currency which is used in routine. Its worth is its inherent characteristic and people will use it as a standard to measure 3 the value of commodities. And in the words of Ibn-e-Al Qameem: Dirham and dinar are Asman ( )for sold out items, and Saman () 4 is the standard to establish the prices of commodities. These references are quoted in order to establish the clear concurrence of opinion between contemporary economists and Islamic scholars on the functions of money. It needs to be pointed out here that this concurrence does not exist on money being a tradable commodity which makes it clear that money itself is not a tradable good but only a means to trade goods. In none of these definitions is money indicated as an item to be traded or rented for profit and has to be treated and used only as a medium of exchange.
2

INFLATION AND DEFLATION

The topic of inflation and deflation of money falls under Value of Money and hence will be discussed in more detail later alongn with its various types and causes and effects on the economy. Inflation and deflation are antonyms. The literal meaning of inflation is appreciation, amplification or expansion of anything while deflation means decrease, reduction or contraction. When the terms inflation and deflation are used in context of the monetary system, they refer to the expansion or contraction of the supply of money. When there is an

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44 expansion of money, there is a greater supply of money in relation to the supply of commodities which leads to higher prices. This situation also analogously reduces the value of the monetary unit and is referred to as inflation. Similarly, if the money supply reduces in the economy in relation to the supply of commodities, prices are reduced and each monetary unit increases in value as compared to the value of commodities. This situation is referred to as deflation. Simply put, monetary expansion leads to an increase in the price of commodities and reduction in the value of currency while the contraction of money supply 1 reduces commodity prices and increases the value of currency.

Value of money

Prices of Commodities

Inflation and deflation in economies was just as common in ealier times as it is now. Over time the meanings of the terms have standardized where the fluctuating prices of commodities, regardless of reasons such as fluctuating money supply or reduction in the supply of commodities, is now also encompassed within these standard definitions. This subject will be discussed in detail in Chapter 6.

Islam and Contemporary Economics and Trading by Justice Muhammad Taqi Usmani, page 108 Addition References: Money and Banking by Sheikh Atta Allah MA, page 184 Money and Banking by Sheikh Mubarak Ali, page 83 ) (

45

CHAPTER-2: RIBA (INTEREST/USURY)

Islamic rulings related to money are a critical issue when it comes to the Riba () or interest. It is hence imperative to define Riba in detail and discuss related matters to it in detail. Both the literal and terminological meaning of Riba are markup or increase.

SYNOPSIS OF EVIDENCE ON IMPORTANCE OF RIBA

The Quran explicitly warns against the use of Riba: " -" Those who take interest will not stand but as whom the demon has driven crazy by his touch. That is because they have said: 'Trading is but like Riba'. And Allah has permitted trading and prohibited Riba. (Surah Al Baqarah, verse 275) " " Allah destroys Riba and nourishes charities. (Surah Al Baqarah, verse 276) " O those who believe, fear Allah and give up what still remains of the Riba if you are believers. But if you do not, then listen to the declaration of war from Allah and His Messenger." (Surah Al Baqarah, verse 278,279) ... "

46 O ye who believe! Devour not usury, doubled and multiplied; but fear Allah that ye may (really) prosper. (Surah Al-Imran verse 130) Some Hadith on the subject of Riba are as follows: : :" " : Hazrat Muhammad (SAW) has cursed those who take and facilitate in the process of Riba, and according to another tradition he has cursed all those who eat, facilitate, write contracts and bear witness for the Riba 1 based transaction and has said that they are all equal (in their sin). " There are seventy plus anomalies in Riba, and Shirk is equal to them .
2

"" One dirham of Riba is equal to fornication done thirty three times, that 3 fornication which a person does after accepting Islam. "" Riba has about seventy three levels of sins and the least among them is 4 like committing adultery with ones own mother. "" Any who earns more with Riba, its imperative that his earnings may 5 decrease. ""

1 2

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47 If in a society adultery and Riba become a norm then that society has 1 invited the wrath of Allah SWT. " "

If Riba becomes a norm in any society, it will most definitely face 2 famine. " " Before the judgment day, Riba will become widely accepted .
3

"" A time will come when no person will be saved from consuming Riba, 4 even if he does not, the effects of Riba will surely reach him These Quranic verses and Hadith can be considered just a tip of the mountain when it comes to highlighting Islamic admonitions against the use of Riba. Innumerable other traditions discuss the punishments for individuals engaging in the practice. All Hadith pertaining to the issue of Riba are detailed in Problem of Interest, a journal by Mufti-e-Azam Moulana Mufti Muhammad Shafi (RA). The doctoral thesis Shirkat-o-Madarbat by Dr. Imran Ashraf Usmani is another comprehensive discussion on the topic. Dr. Usmanis thesis is certified by Karachi University and is also available in book form.

TYPES OF RIBA
RIBA AN-NASIYAH ()
Riba An-Nasiyah, Al-Nasiah ( )meaning debt, is also referred to as Riba BilQuran (), Riba Al-Jahiliyya (), and Riba Al-Qard (). This type of Riba is directly and strictly forbidden in various verses of the Quran, hence the name Riba Bil-Quran. There is also irrefutable and inviolable evidence in Shariah
1 2

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48 against Riba Al-Nasiah. Riba Al-Nasiah is called Riba Al-Jahiliyya as it was a common practice in the decadent classes, notably the Jews, both before and after the advent of Islam. The third alternate name, Riba Al-Qard is used because this is money which is charged over a loan given to any person for any reason.

RIBA AL-FADL ()
Riba Al-Fadl (), Al Fadl meaning excess, is the second major type of Riba and is also referred to as Riba Al-Hadith ( )and Riba Al-Bay. The alternate name Riba Al-Hadith is used for it because this type of Riba is not only detailed in the Quran but also in a number of Hadith. It is called Riba Al-Bay because it deals with the excess money charged on sale transactions. The following definition provided by Ibn-e-Al-Arabi encompasses both Riba Al-Nasiah and Riba Al-Fadl and is considered one of the most complete definitions on the subject: " " Literal meaning of Riba is of excess/markup and in the verses of Quran it is used for all such markup/gains which are without any service 1 or effort. This definition applies to Riba Al-Nasiah ( )because the markup or the gain in price or repayment of loan is earned by the lender on the principal balance without offering any additional services or effort to the borrower. The definition applies equally correctly to Riba Al-Fadl since the additional money charged on sales transactions with deferred payments does not pertain to any additional services offered by the lender. Abu-Bakar Al-Jassas (RA) defines Riba in the following words: " " The Riba is a stipulated increase expected from the borrower (by the creditor) over a the principal amount of the loan given for stipulated 2 period.

1 -------------------- ) ( ) ( ----------------- )) ( (

49 In this definition Allama Al-Jassas focuses on debt and confines the scope of the definition of Riba to Riba Al-Nasiah. Commenting on this definition, Justice Mufti Taqi Usmani writes: " : : : : : : : " This definition incorporates all forms of Riba Al-Nasiah ( )which has been prohibited in all religious scriptures. This definition has also been acknowledged in Exodus 22:25, Leviticus 25:35, Deuteronomy 1 23:20, Psalms 15:5, Proverbs 28:8, Ezekiel 12,22,17,13,8,18. Explanation and Investigation of Famous Hadith on Riba Al-Nasiah () "" Haris Bin Ibn-e-Abi Usama has reportedly narrated the sayings of Hazrat 2 Ali (RAA): Profit earned by a debt is Riba (interest). Since this Hadith mentions debt, it refers to Riba Al -Nasiah (). Though there is dispute over the authentication of this Hadith, its content has been confirmed by reliable evidence and quotes which make it acceptable. According to Mohdaseen, this Hadith is not only accepted for implementation but is widely acknowledged as authentic by the Ummah or Muslim world. It has been declared reliable by Imam-al-Harman and Imam Ghazali and has been discussed in The 3 Problem of Interest by Mufti-e-Azam Moulana Mufti Muhammad Shafi (RA): This Hadith has been quoted in Jamia -e-Sagheer ( )by Allama Seoti, but in his highly comprehensive commentary Jamia -e-Sagheer (

--- - ( ) )( 2 ) ( () )( 3 ------------------------------------------------------------- ) (

50 : )he has declared its authenticity to be disputed and labeled it as untrustworthy. However in his commentary Siraj-ul-Muneer he describes it as follows: This Hadith should be treated as good as other since its contents are confirmed by other sources and evidences hence as per historians of Hadith, it should be accepted for implementation. The acceptance and acknowledgment of this Hadith as being valid by the majority of Islamic jurists and historians gives credence to the fact that it is congruent with the rulings of the Quran and Sunnah on the subject. It is hence highly inappropriate to doubt the validity of this Hadith as done by some Arab 2 authors and scholars. The Hadith clearly implies that any form of markup is a conditional part of the contract. According to various Shariah rulings, compulsory or conditional are used in similar context and are hence used in the same perspective by Imam Abubakar Jassas and others. It can easily be deduced that the Hadith places a wide ranging or general prohibition on markup or interest, whether this markup or interest occurs in the form of an additional commodity, asset or additional service. Therefore Any profit or markup either conditional or compulsory, in any form (money, service, or any form of asset is Riba and is prohibited. The following conclusions can be deduced from this discussion: 1. 2. That since the emphasis on gain or profit is generalized in the Hadith, it refers to both compulsory or conditional gain or profit. The term profit or markup is generic and includes different forms such as additional service, money or any other type of asset.
1

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51 The first conclusion is justified since all the Hadith and historical evidence confirming the actions of Prophet Muhammad (SAW) and his companions relate 1 to it. The second point is irrefutable on grounds that all the four imams have restricted any form of gain yielded by the creditor over what was loaned. A number of Hadith further elucidate and clarify these prohibitions: 1. Any understood or conditional benefit accrued over a loan in any form is 2 illegitimate. It is illegitimate for the lender to use the borrowers means of transport 3 or eat food in his house in lieu of the debt. It is illegitimate to give a loan on the condition that the borrower will 4 later sell any of his asset, like car or house, to the creditor. Suftaja ( ) has been prohibited by all four imams even though the 5 creditors gain is not in the form of any physical asset.

2.

3. 4.

Analyzing the prohibition on Suftaja, the economist Sheikh Mehmood Ahmed 6 (Late) asserts that judging by the literal meaning of the word as offered by Allama Al-Jassas and other scholars, the term asset is used generically and refers to any type of gain, even if it is in the form of easing any hardship related to loan

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: " " : : : :" " 2 ----------------------------------------------------------------------------------------------- ) ( 3 ----------------------------------------------- )( ( ) 4 Ibid 5 -------------------------------------------------------------------------------------------------- )( is a type of loan which the borrower is supposed to return not to the lender but to a person specified by the lender. It requires the borrower to bear the traveling risks and expenses. For example, Zaid, who is a trader, take a loan from Omar on a condition that Zaid would return this amount to his relative or friend on another city. This has been prohibited by jurists because Omar gets a benefit from via avoiding the travel fatigue and risk, this is like hence prohibited. 6 Alternative to Interest, a book by Mehmood Ahmed, Publisher: Idarah Saqafat Islamia Lahore, 1st Edition, 1986.

52 retrieval. Hence it is incorrect to assume that gains which do not have a viable physical form are permissible. The term asset was used symbolically before the advent of Islam where it was generally understood that any gains over loans were not limited to visible assets alone. Therefore in later usage also, the word asset is not taken in the literal sense. Had this been the case, the explanation given by Allama Al-Jassas would contradict with the Hadith under discussion since it fails to specify exactly the type or form of gain. Additionally, a number of other 1 scholars also do not limit the definition of the word gain to asset alone . To surmise, as per this Hadith, any formal or informal markup, profit or gain, irrespective of form, over a loan is Riba Al-Nasiah. It is prohibited in Quran and Hadith and hence must be avoided.

RIBA AL-FADL
Riba Al-Fadl refers to the profit earned through the exchange of certain cereals or grains. There is a recognized Hadith pertaining to Riba Al-Fadl, also referred to as the Hadith of six items because it discusses items of six types: " Gold for gold, silver for silver, wheat for wheat, barley for barley, date for date, salt for salt, must be equal on both sides and hand to hand. Whoever pays more or demands more (on either side) indulges in Riba, however gold can be exchanged for more silver, similarly dates can be 2 exchanged for more barley at any mutually agreed rate. This Hadith has been quoted in various books with slight variations even though it infers the same basic principle; any gain during the exchange of identical items is prohibited. Though the Hadith mentions six items, it is understood that Riba is not limited to just these items but includes other goods, grains, and services also.
3

The Problem of Interest 2 ---------------------------------------------------------- ( ) 3 ------------------------------------------------ ( ) : ( ) ) (

53 In an attempt to clarify exactly what these other goods are, Mujtahideen () or qualified scholars adopt a rationalizing ( )approach according to which the Illah for these items has been identified (Illah is the primary feature or condition for any rule or law to be applicable). It is through the process of Ijtehad () that every Mujtahid ( )derives Illah and makes it the basis for his rulings. The details of this are available in jurisprudence literature.

DEFINITION OF ILLAH
As per the rules of Arabic lexicon the meaning of Illah ( )is illness if the letter ayn ( )is removed from it. However terminologically, it refers to different 1 things . An extract of one of the most establisehd definitions of Illah is as follows: Illah is the basic condition of ruling, i.e. it is the intrinsic property of an action due to which a ruling can be derived from it. Illah allows the application of that ruling to another action if it posseses similar 2 properties or Illah.

EXTRACT OF DEFINITIONS OF ILLAH

Assume that a reference act is Act-A from which Illah is derived. If the reference is found in Act-B as well then this ruling or Illah will be applicable here too. However if the Illah or the feature or condition is not present in Act-B, then the ruling will be considered non-applicable on Act-B. The Illah of any act is the basic criterion according to which the ruling can be applied on other actions. It needs to be emphasized here that the Illah for these acts necessarily have to be the
1

( ) ( 2 ) ( " " )" " ( ) ( : :" )( "" " "

The Historic Judgment on Interest by Justice Muhammad Taqi Usmani: "The Illah is the basic feature of a transaction without which the relevant law cannot be applied to it, page-80

54 criterion for the ruling of the reference act. Illah here can also be referred to as the standard by which to judge the applicability of this ruling on other acts conforming to the requisite features and conditions or the Illah of the reference 1 act () . For instance, though alcoholic drinks are declared haram or forbidden in the Quran, there is no specific mention of drugs such as cocaine, marijuana or heroin in the Quran. However given the fact that the Illah or the intrinsic nature of alcoholic drinks is also present in cocaine and other drugs, therefore these too would be considered haram. Also the prohibition on alcoholic drinks is not due to its Illah but because it is instructed so in the Quran. Therefore even though these drugs are not specifically mentioned by name in the Quran but because they have the same Illah as alcohol, these are also considered haram or forbidden.

HIKMAH (WISDOM)
According to the Arabic lexicon, Hikmah is strength or stability. Its terminological meaning within the context of the current discussion is as follows: Hikmah is the reason or logic which holds an act prohibited or allowed, whether the reason is about holding the earnings or about 2 letting go or scraping the money earned. This means that if a certain act is permitted by Shariah, then the Hikmah is the benefit a person can potentially gain by performing the act. Similarly if an act has been prohibited, then the Hikmah would be avoiding the damage that could

--- ( ) ) (

---- ----------------- ) ( : ) ( ) ( The Historic Judgment on Interest by Justice Muhammad Taqi Usmani, page 80 "The Hikmahat is the wisdom and the philasophy taken into account by the legislator while framing the law....."

55 occur if that act is performed. The content of Hikmah is limited to the capacity of human intellect, unless a ruling has specifically been defined in the Quran or Sunnah. It is possible that over time and in the light of emerging evidence, new reasons for an act to be permitted or prohibited may be discovered. For instance Muslims today have scientifically backed reasoning for why Allah has deemed swine flesh Haram. Similarly there are new grounds today as compared to 1400 years ago which authenticate the reasons as to why Allah has prohibited the use of drugs and alcohol. These new grounds can be considered the new level of Hikmah for abstaining from these prohibited acts.

THE DIFFERENCE BETWEEN ILLAH AND HIKMAH

The above stated definitions of both terms clearly illustrate the difference between them as well; Illah are the boundaries, features or properties of an act or situation which constitute the criterion for acceptability or non acceptability as per Shariah rulings. Any act judged by Hikmah alone and without the presence of Illah is null and void as per Islamic rulings. Hikmah refers to the intellect of every individual person as he or she seeks to make the right choices in life as prescribed by the Quran and Sunnah. For instance a traveler is allowed to offer short prayers or Qasr. The Hikmah behind this ruling is to save the traveler added fatigue. However today traveling is no longer as tedious, tiring or time consuming as it used to be given modern technologies and amenities. Judging by modern standards, it would be difficult to justify the ruling on Qasr on the basis of this Hikmah alone. It is however not just the Hikmah behind this judgment on Qasr but the Illah on traveling as per Shariah rulings which makes the rules of Qasr applicable even today regardless of how easy travel has become. In an attempt to clarify further the difference between Hikmah and Illah, some scholars revert to contemporary examples such as the traffic law of stopping at a red light. Here, to stop the car at a red light is the rule while the red light itself is the Illah. The Hikmah behind this rule is to regulate the flow of traffic and avoid accidents. However, if this rule was just supported by Hikmah alone, it wouldnt always be followed such as at times when there is no traffic on the road and it is apparently safe to cross the light. But according to the rule, people have to stop on the red light whether there is any traffic on the road or not. Illah here is the

56 red light and not the issue of safety which makes it mandatory to stop even if a 1 person fails to see the Hikmah or logic in it. Caution: The reason why it is necessary to explain the difference between Illah and Hikmah within the context of this book is that various Hikmah or excuses have started being presented in favor of Riba or interest. One of these is that since bank loans are borrowed by businesses to invest and earn profit, or since the loans which banks take from various lenders or depositors is beneficial to all parties involved therefore the prohibition on Riba is deemed void in these scenario. Another so called Hikmah is that though a markup demanded on a loan from a needy person who took the the loan because he had no other choice is cruel and unfair, the loans given by banks to businesses cannot be judged on the same grounds. This Hikmah is formulatd to justify the profit or interest accrued by banks on their loans since these loans are used as an investment to earn profit which in turn is shared among the lenders. Since these bank transactions are considered beneficial for both parties, the Hikmah related to the rulings of Riba or interest in this case is that gains or profit in any form here cannot be deemed illegitimate. Fallacies such as these have started to emerge primarily because of the prevalent confusion which exists in society regarding the definitions of Hikmah and Illah. At this point in the discussion, this confusion have been clarified satisfactorily, validating the fact that the correct ruling for the above scenario is the one based on Illah and not Hikmah. Rulings are formulated in the presence of Illah and never in their absence. Only Hikmah related to deciding the unfairness or fairness of an act are not sufficient grounds to formulate Islamic rulings. In this case it is the Illah on Riba which needs to be considered in order to justify or dismiss the legitimacy of interest on bank loans. Therefore for banks, lenders, businesses or depositors to charge or earn markup of any nature on any type of loan is classified as Riba, hence Haram or strictly prohibited. Various scholars have discussed in detail the unjustness and unfairness of business loans 2 altogether.

) ( ) ( Historic Judgment on Interest (by Justice Muhammed Taqi Usmani) 2 ---------------------------------------------------------------------------------------------------------------------

57

INVESTIGATION OF ILLAH ON RIBA IN THE FORM OF MONEY

As discussed earlier, Riba can occur in a variety of forms. Riba in the form of money can occur as Riba Al-Nasiah and Riba Al-Fadl. When attempting to analyze the reasons or Illah of Riba Al-Fadl being Haram or forbidden when in the form of money, three famous verdicts need to be discussed:

1ST VERDICT
When money is judged on weight and substance then it must be exchanged with equal weight and substance such as equal amounts of gold for gold or silver for silver. It is imperative that weight and substance remain identical during any such exchange. If this exchange occurs with even the slightest gain or loss of weight and material, it will be termed Riba. This opinion is from the Hanafi School of 1 Thought and a famous verdict of Imam Ahmed ibn Hanbal (RA). Some Quranic verses are also associated with the verdict: "Give just measure, and cause no loss (to others by fraud). (Surah AlShura, 181) "And O my people! give just measure and weight, nor withhold from the people the things that are their due: commit not evil in the land with intent to do mischief. (Surah Hood, 85) Woe to those that deal in fraud, those who, when they have to receive by measure from men, exact full measure, but when they have to give by measure or weight to men, give less than due. (Surah Mutaffifin, 1 3)
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1

58 These verses specifically instruct to measure correctly and weigh fully. The Quran also explicitly warns against not delivering what is promised. In the light of these verses the Illah of Riba is weight in case of gold and silver and measurement of 1 other units of exchange such as Fuloos. All evidence found in the Sunnah indicates that the items belonging to the group of six imply to the said Illah:

" " Gold for gold, silver for silver, the additional quantity demanded over is 2 Riba. -"" Dont sell gold for gold, unless the quantities are equal.
3

"" Dont sell a dirham for two, and dont sell a Saa (measured quantity) for 4 double of its quantity. In the last Hadith, dirham is mentioned in context of weight and Saa ( )is related to measurement. The literal meaning of Saa is weighing scale but here it is used to indicate the items which are weighed. These Hadith also compare the fundamental nature of items hence inferring that the Illah for Riba is also applicable on Qadr and Jins or the value and material content of items. Similar is the case with the Hadith of six items which focuses primarily on their fundamental nature or essence. It can also be said that these are weighable ) )or measureable ( )items. -" " Those items which are weighed must be exchanged in equal quantities. Those items which are measured hold the same verdict. However when

------------ ------------ )( ( ) ----------------------------------------------------------------------------------------- 3 Ibid 4 ---------------------------------------------------------------------------------------)(

2

59 the types are different, then there is no issue (in exchanging items in 1 unequal quantities). In the sale of asset for an asset, the assets should be equal meaning that all units of items should be exchanged with identical units of the same item. For instance, in case of dinars the shape and material content of each dinar should be equal on both sides. If they are identical in shape then they will be considered weighable ) )since their material properties are identical. Therefore even if there is an addition of dinar on either side of the transaction, it would be considered st 2 Riba as postulated by the conditions of the 1 verdict. Simply, it is illegitimate to increase the weight or material content of similar items being used in a transaction. Hence the Illah of Riba Al-Fadl is the weight or material content of the items in any transaction.

2ND VERDICT
The second verdict states that when Riba Al-Fadl is in the form of money, the Illah for judgment are (a) its material content and (b) its natural characteristics of being a unit of exchange which is also referred to as Saman Johria and Samaniat Ghalba. This is the opinion of Imam Shafii (RA) and also a well known verdict of 3 Imam Malik (RA). The Illah of Riba in cases of gold and silver transactions is their value not weight as per the opinion of Imam Malik and Imam Shafi i. This opinion is endorsed by a number of scholars that the forward sale of gold and silver is permissible in exchange of any item. This also applies to the weighable items where the values of the items exchanged with gold or silver must be equal even if the weights of the items exchanged differ. For instance 1 ton of wheat delivered a week later in lieu of spot-payment of ton of barley or vice versa is not permissible since their values differ. The same principle applies to gold or silver in their forward sale in lieu of objects where difference of weight is allowed
----------------------------- ) ( 2 ----------------------------------------------------------------------------------------)( 3 --------- ) ) ( ( : : ) ) ( ! (
1

60 but values should be consistent. Therefore the Illah of Riba Al-Fadl here is 1 consistent value in case of gold and silver. Negation: Since the Illah in the 2 verdict remains confined to the use of gold and silver alone and cannot be applied to other items, it is considered a redundant verdict. Also assuming that this Illah is primarily applicable to transactions of gold and silver makes this Illah additionally defunct. This verdict 2 therefore becomes irrelevant and has little practical value.
nd

3RD VERDICT
According to the verdict of the Maliki School of Thought, the Illah for Riba when it occurs in monetary form is its fundamental nature and ascribed value. The verdict is also popular among the scholars of the Hanafi school and is supported 3 by Imam Muhammad (RA). As per the verdict, when the ascribed value of a monetary unit is Illah for Riba Al-Fadl then the rules of Riba Al-Fadl will be applicable here regardless of the type of currency in the monetary system, Fuloos or any other. For this reason the verdict disallows the sale of money for money, 4 declaring the transaction as interest based. The logic behind this verdict is that the function of Fuloos is similar to dirham and dinar since all are mediums of exchange. Therefore the rulings of Riba which apply to dirham and dinar will 5 similarly apply on Fuloos well.

ILLAH OF RIBA AL-NASIAH

Contrary to the difference in views related to Riba Al-Fadl, Riba Al-Nasiah is clear and there are no two opinions; any understood or conditional gain, markup or profit in any transaction related to loan, debt or credit which is accrued without additional services or effort from the lender is illegitimate. Though the core philosophy of Riba Al-Fadl is similar, the Hadith related to it focusing on six items only raises the question of whether this ruling is limited to just the six specified items or if it can be extended to other items as well. A number of scholars assume that the scope of Riba as outlined in the said Hadith is limited only to the
-------------------------------------------------------------------------------------------- )( -------- )( ( ) 3 -------------------------------------------------------------------------------------------------------------- )( 4 ----------------------------------------------------- ) ( ) ( 5 ------------------------------------------------------------------------------------------------------------ )(
2 1

61 six listed items. According to Hazrat Omar (RAA), it was this form of Riba which was not elaborated upon by Prophet Muhammad (SAW) before his death. Therefore a number of scholars have formulated the Illah for this Riba through an extensive analysis and investigation of required texts to the best of their ability and have developed rulings accordingly. On the other hand, Riba Al-Nasiah is not associated with any particular items or item but elaborates a basic principle that any loan which becomes the source of Jar-e-Manfeat (to draw benefit ) is illegitimate and hence forbidden.

1ST BENEFIT OF EXTENDED SCOPE OF RULING OF RIBA

Even though the Hadith of six items explicitly focuses on Riba on specified items, there is still a question of whether this scope of Riba can be extended to other items. This room for question divides scholars into two groups. The first group is convinced that this ruling is applicable to other items as well while the second group feels that the scope of the ruling is only limited to the items specified in the Hadith. Scholars in the second group include Taoos, Qatadah, Shabee, Masrooq, Usman Batee, Qazi Abu Bakar Alba Qalani, Siddique Hasan Khan, Allama Ibn-e-Hazam and 1 all Ahl-e-Zahir () . . These scholars hold their opinion on following grounds: 1. 2. 3. They do not agree with an approach based on an assumption. They believe that the Hadith applies on to the items specifically mentioned (). For contriving this Illah, the first group of scholars contradict with the other group, hence rendering the Illah null and void. There is also an absence of a decisive logic which could justify the extension of this Hadith to other items.

----------------------------------------------------------------------------------- )( ) ( ) ( :

62

2ND BENEFIT: DIFFERENCE BETWEEN RIBA AL-NASIYAH ( ) AND ) RIBA AN-NASA (

These two terms are frequently mentioned in Islamic literature and it is important to understand the difference between them. Riba An-Nasa ( ) is related to sales while Riba An-Nasiyah ( )is related to loan. Consider the following four cases: 1. 2. 3. 4. The exchange of gold with gold. The exchange of silver with silver. The exchange of silver with gold. The exchange of gold with silver.

In the first two cases, Riba Al-Fadl and Riba An-Nasa could be ascribed. If there is an increase during the transaction on either side, it would be Riba Al-Fadl. In case of sales with deferred payments and forward sales with increase, it would be Riba An-Nasa. In the last two cases an increase can occur on either side of the transaction on account of differing exchange rates. These two exchanges are however permissible only for spot exchange since it is only due to time difference that a difference in rate is more likely to occur, categorizing the transaction as Riba An-Nasa. This issue will be discussed in more detail in the chapter on 1 BaySurf ( )or Money Exchange.

--------------------------------------------------------------------- ) ( :"

63

WHAT IS SAMANIAT (?)

The Samaniat of any item is its ability to represent its stored value or Saman. The extract of all these definitions is that anything which is exchanged for another during a sales contract is known as Saman (). -"" Anything which could be exchanged in lieu of an item while its sold .
1

-" : : " Saman of any item is its value.

2

"" It is widely accepted that Saman is something which is swapped in a 3 sales contract. Though these definitions seemingly classify all forms of money as Saman, not all exchangeable items with the attributes of Saman can be termed money. For instance if a person barters his house with a car, then the car would be Saman, even though it obviously shares no similarities with a monetary unit of exchange. Therefore all those who believe that Saman-e-Mutlaqa or stored value is the Illlah of Riba over money also see it to be Saman-e-Khilqi or natural value or simply Saman. The term Saman is hence generally used to refer to any form of money including Fuloos or paper currency. There are three different forms of Saman:

: " : ) ( "" 1 --- ) ( 2 --- ----- ) ( )( 3 ----------------------------------------------------------------------- )(

1. 2. 3.

64 Natural Saman such as gold or silver. Artificial or supposed Saman such as Fuloos or paper notes. Circumstantial Saman such as the car mentioned above.

As per the details outlines in Chapters 1 and 2, it should be clear that assets, money, currency and Saman do not represent the same thing and the differences between all, even if slight, should be well established.

65

CHAPTER-3: CURRENCY NOTES AND FULOOS

CURRENCY NOTES
As previously discussed in the section on the history of money, the receipts issued by money changers and goldsmiths during the 1700s later evolved into paper notes. Over time these took the form of banknotes or legalized receipts. Eventually governments assumed the sole responsibility of producing these under the title of legal tender. As per their evolutionary history, paper notes may be defined in the following words: Paper note is a promissory receipt which has been legally enforced like a 1 coin. In his book Behjat-ul-Mushtaq, Allama Syed Ahmed Al-Hasaee (RA) writes: When we researched about the fundamental nature of a banknote, we learned that it originated from a term in a famous French lexicon called Laroos, which means: Banknote is a currency note which can be exchanged for its real value when demanded and this is exactly how these notes are recognized. Furthermore these notes are secure i.e. their replacement is guaranteed so that people can trustfully use them in 2 market It is asserted here that the terms notes, currency notes, banknotes, or paper money are all synonymous in meaning. In Arabic these are r eferred to as "", " " ro "

1 2

Contemporary Problems in Jurisprudence (2/88) Refer to Rules of Paper Notes and Currency, page 17

66 It is seen that scholars and jurists hold varying viewpoints related to the concept of currency notes in Shariah. In jurisprudence literature, seven different views stand out, of which the four most popular are further discussed:

PAPER NOTE AS A CERTIFICATE OF DEBT.

A number of scholars from the twentieth century of mostly Indian origin, including Hazrat Moulana Rasheed Ahmed Gangohi, Hazrat Moulana Ashraf Ali Thanvi and Hazrat Moulana Mufti Muhammad Shafi (RA), were of the opinion that a paper note is a certificate of debt. These scholars do not see a paper note as an asset, an alternate form of gold or silver, or as a store of value or saman but consider it to be only a certificate of the debt which the issuer owes to the bearer 1 of the note.

JUSTIFICATIONS FAVORING THE VIEWPOINT

i. An important justification in support of this viewpoint was the promise stated on the note at the time when the gold standard was intact. As per this promise, the entire value of the note was returned when demanded hence justifying the status of the note as a certificate or proof of debt. Commenting on this justification, Allama Syed Ahmed AlHasaee (RA) states: "" : This statement which confirms that a Paper Note is redeemable by any amount specified on it is sufficient to justify that this note is a genuine 2 certificate of debt ii. The value which is ascribed to these notes is based on the assumption that they can be redeemed with precious metals at any time. This assumption is based on the requirement that a substitute amount of
----------------- )(-- ) ( ) ( ) ( ) ( 2 ------ --- ( ) )(
1

iii.

iv.

67 gold or silver be present in the vault of the issuer. This makes paper 1 notes a viable certificate of the gold and silver held by the issuer. Paper notes are nothing but pieces of paper with different denominations printed on slightly different sized paper using varying amounts of ink. On the contrary, a currency note of Rs. 50 is half the worth of Rs. 100 and differs in value. This is a clear indication that these notes are a substitute for real wealth. It is understood that governments are responsible for replacing currency notes when they are damaged or expired. This further supports the 2 viewpoint under discussion.

CONTRADICTIONS OF THIS VIEWPOINT WITH PRINCIPLES OF JURISPRUDENCE

i. A paper note cannot take the part of assets in forward sales. Acquiring a paper note does not mean acquiring the item it represents since a paper note is a certificate of debt. Therefore obtaining a paper note does not mean obtaining the actual real value. On the contrary, as per the principles of jurisprudence, it is mandatory for the party purchasing the goods to show the assets against which the sales are being made. It is imperative to follow this principle during forward sales otherwise the transaction will be rendered sale of debt for debt and this is prohibited 3 in Shariah. It is illegitimate to sell or purchase gold or silver with the use of paper notes because this constitutes the sale of money for debt. This is also unacceptable because in transactions of money exchange and spot exchange, it is mandatory for both parties to acquire physical ownership of the asset at the venue where the transaction is taking place. However, as per this viewpoint, money is assumed to be a promissory note or certificate of debt redeemable with gold or silver and not real wealth. Since it is non-permissible to spot exchange while purchasing gold or silver with paper notes, therefore such a transaction is void from 4 the Shariah perspective.
1

ii.

---- -- ( ) )( 2 ---------------------------------------------------------------------------------- )( 3 -------------------------------------------------------------------------------------------- 4 ----------------------------------------------------------------------------------------- ) (

iii. iv.

v.

68 1 Zakat cannot be paid by using promissory notes. The transactions which are made with paper notes can be compared with Hawala or money transfer which is acceptable as per Tatee (), a transaction without any specific word of offer and acceptance. For instance, when purchasing a book from Zaid, Omar paid with paper notes but did not pay the actual price of the book. Instead he asked Zaid to ask the issuer of the paper note to substitute it for gold or silver equal 2 to the price of the book. It is not permissible to exchange a note for a note unless the denominations differ such as changing a Rs. 100 note for two notes of Rs. 50. Unless the denominations differ, the transaction constitutes sale of debt for debt, which is prohibited.

ANALYSIS
In attempting to follow the rules of Shariah pertaining to this viewpoint, it is possible to run into a number of operational difficulties and barriers in monetary transactions, such as the matters discussed above. However in Shariah and more specifically according to the Quran and Sunnah, unnecessary operational difficulties (Haraj) are sought to be relieved and removed. According to the researcher Abd-ur-Rehman Al-Sadie; " " All transactions are based on these notes, therefo re if it is said that they are Certificate of Debts then all dealings will be suspend ed, but 3 circumstances rather demands agility and ease. Similarly Justice Mufti Taqi Usmani states: " "

-------------------------------------------------------------------------------------------------------------- ) ( ------------------------------------------------------------------------------ 3 ------------------------------------------------------------------------------------------------------ ) (

2

69 There is a colossal and intolerable loss in this case, but on the contrary Shariah intends or tries to facilitate and give room for related matters of 1 contemporary nature. These opinions imply that in applying this viewpoint, people will opt to resist obscurity and choose to act in a manner which might possibly violate Shariah rulings. Also the legitimacy of referring to a paper note as a certificate of debt is not confirmed by any clear-cut or distinct clause in the Shariah. This makes it inappropriate to call a paper note a certificate of debt, in which case it would become impossible for the public to refrain from acts which are haram or illegitimate. Also in earlier times the promise mentioned on a currency note was made with the intention of being fulfilled when required. In current day and age this promise is meaningless where the issuer of paper notes is not bound to redeem these with quantities of gold or silver. Furthermore, these notes are not even backed by gold or silver. The only benefit of these promissory notes or guarantee is that the issuer could replace them with notes of different denominations, coins, and other monetary forms such as bonds and treasury bills at will. According to Geoffrey Crowther, The promise to pay which appears on their face is now utterly meaningless. Even amounts of 1700 (as it was allowed earlier) cannot be converted into gold now. The note is no more than a piece of paper of no intrinsic value whatsoever and if it were presented for redemption, the Bank of England could honor it only by giving silver coins or other notes, but it 2 is accepted as money throughout the British Isles. Nowadays the use of these notes is to facilitate purchasing activities. This guarantee keeps the trust of the public intact so that they continue to be used as a medium of exchange smoothly and without resistance. This discussion demonstrates the weakness and violability of this viewpoint, hence establishing its unsuitability for use in contemporary conditions.

PAPER NOTE AS A FORM OF ASSET OR GOODS

According to this view paper notes are a form of assets or goods. All types of transactions today are conducted with paper notes because these notes are

1 2

----------------------------------------------------------------------------------------- ) ( Rulings on Paper Notes and Currency, page 25

70 considered valuable. Their continued use over the years has developed the public trust in these notes. At the same time it has made them comparable with the items of real value such as precious stones like diamonds. This viewpoint is held by a number of scholars of Indian origin including Allama Ram Puri and 1 Ahmad Raza Khan Baralvi, and Sheikh Abd-ur-Rehman Bin Sadee. Seeking to establish that a paper note is a form of asset and not a certificate of debt or Saman, Ahmad Raza Khan Baralvi writes in his journal: " " We know that it is a piece of paper and paper is an item of commercial value. It caught the attention of public due to its ability to substituted for coins. It gained popularity as a hoarder of savings; just like assets which have the same capacity. It is widely accepted and recognized and 2 capable to fulfill the requirements of time.

JUSTIFICATIONS FAVORING THIS VIEWPOINT

i. All definitions which apply on assets are also valid for paper notes.

""
Other than gold, silver and eatables, all items can be termed as asset. "" Anything other than money (dirham, dinar and Fuloos) is an Asset. "" All those items upon which ruling of Zakat is not applicable are Assets. ""

----------------------------------------------------------------------------------------------- ) ( ------- -- ( ) )(

71 Other than animals, eatables and cash (dirham , dinar and Fuloos), 1 anything is an Asset. i. A sale contract is considered valid when paper notes are used from one side of the transactions and this validity is not conditional upon the physical presence of gold or silver. Though these notes being paper differ in nature from gold or silver, they are equivalent to gold and silver in context of Saman. However this does not imply that the rulings associated with gold and silver can also be applied to paper notes. Similarly diamonds or pearls may exceed in value than gold or silver but 2 are nonetheless treated differently. Paper notes have an exclusively unique fundamental nature and they cannot be weighed or measured. Jurists have defined principles for comparing contemporary items with similar items discussed in jurisprudence. One of these rulings is that a paper note can be treated as an asset. This is so because according to jurisprudence laws, assets are items which are neither measurable nor weighable. However paper notes are not comparable with animals or 3 pieces of land. In prior times, the dissolution of the issuing authority behind paper notes, such as governments, caused the value of these notes to dissolve as well. This asserts that paper notes do not share similarities with money even though they can be used until their value eventually expires. Gold and silver are entirely free of any such constraints and are real money. Hence to compare them with paper notes and to ascribe 4 their rules to money is irrelevant. Qayas Mal al Farq.

ii.

iii.

iv.

------------- ------------- ) ( --------------------------------------------------------------------------------------------- --------- ) ( 3 --------------------------------------------------------------------------- )( 4 ----------------------------------------------------------------------------------------------------- ) (

72

CONTRADICTION WITH PRINCIPLES OF JURISPRUDENCE

i. The assumption that paper notes are exempt from the rules of money makes this viewpoint very risky and dangerous since this implies that the rules of Riba Al-Fadl are non-applicable on paper notes. For instance, as per this viewpoint a person can exchange Rs. 800 for Rs. 810 and the excess amount will not be considered Riba. However scholars holding this view do consider the rules of Riba An-Nasiyah applicable on paper notes where any markup over a loan is considered prohibited. In context, Ahmed Raza Baralvi states the following in answer to a question: "" It is acceptable to sell a paper note for another of lesser or greater value 1 when both parties mutually agree. It is also mentioned in Fatavee-e-Sadia: " " It has been confirmed that paper note is an asset, therefore it can be exchanged for lesser or greater value of notes, irrespective of their origin (dollars for Riyals) or denomination. Sheikh Salman Al-Hamdan states in his Fatwa: " " Riba has nothing to do with exchange of notes because they are not among those items for which Riba is prohibited. Riba is particularly

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73 associated with items which are weighable or measurable, where as 1 paper note is neither of the two. ii. Zakat is not compulsory on paper notes if they are kept without the 2 intention of trading. Mudharabat through paper notes is allowed in Shariah since it requires dirham or dinar, or Naqood or real money; paper notes are promissory notes or a replacement for gold or silver.

iii.

ANALYSIS
The most perilous and critical point in the prior discussion is the insinuation that the rules of Riba Al-Fadl and Riba Al-Nasa are inapplicable on paper notes. This situation clearly allows transgression into the frontiers of Riba under the assumption that paper notes are neither weighable nor measureable. Since Samaniat is also assumed to be absent in notes, the features or Illah related to the application of the rules of Riba Al-Fadl are considered invalid here as well. As per this viewpoint, paper notes are incorrectly assumed to be compliant with the definition of Urooz, an item used in replacement of gold or silver. This is so because jurists have tailored the definitions for Urooz for special circumstances only and not for ordinary conditions. For instance, in literature related to Zakat, Zakat on urooz has been discussed after the discussion on Zakat on animals, land, and money. The book of Malkia states: "" Arz ( )here means something which is used as a substitute of gold 3 or silver. In one of the justifications, the value of paper notes is contingent upon the influence of the issuing authority. This makes it obvious that the definition of Arz ( )is tailored for specific situations and is not to be used in general. Though the justification for the disintegrating value of paper notes has been provided,
------------------------------------------------------------------------------- )( 2 Ibid 3 ---------------------------------------- ) ( ( )
1

74 their status under the rules of jurisprudence can be analyzed only if their value remains intact. If the value is not intact, then the topic no longer falls within the context of the current discussion, making it irrelevant to evaluate its status in the light of jurisprudence laws.

PAPER NOTES AS A SUBSTITUTE FOR GOLD OR SILVER

The third viewpoint assumes paper notes to be a counterpart of gold and silver where they are not seen to be a certificate of debt or Urooz or have Samaniat. On grounds that they are publicly accepted as substitutes for gold and silver, all rules applicable on these metals will consequentially apply to these as well. This view is held by Moulana Abdul Hai Lakhnavi. According to him paper note is Saman but instead of Fuloos, the rules related to gold and silver will apply to it. He states, Fuloos are artificial money and not considered natural money. Contrary to this paper notes are considered natural money despite the fact that their Samaniat is not natural rather artificial. If Tafadl Bay csecee/) )is allowed in Fuloos then it doesnt means that it is also allowed in case of paper notes. This is because they are unnatural Saman in actual and in theory. Since paper notes have been erroneously labeled and termed in a way that Samaniat is ascribed to them, therefore paper notes are treated as having natural Saman in all rulings. Hence in the chapter of Tafadl ( )its rulings will be developed in the same 1 context and Tafadl ( )will be declared illegitimate.

JUSTIFICATIONS FAVORING THIS VIEWPOINT

i. There are no disagreements with the idea that paper notes are alternates of gold and silver and hold a similar status as a medium of exchange. Given the fact that paper notes have completely replaced these precious metals, therefore all rules applied to these are now applied on paper notes. A well famed principle of jurisprudence is that rules will hold true for the alternate items as well(")" . Since the alternate in question here are paper notes, therefore the rules of gold or silver apply on them in the same capacity.
1

------------------------------------ ) ( ( )

ii.

75 According to the principles of Shariah, the essence and objective of an item defines its context. A recognized principle here is that all rulings are built around the basic purpose of an item, not on its form or shape(")" . Since the purpose of paper notes is to possess Samaniat or to represent value, therefore the rulings for gold and silver 1 apply to paper notes as well.

IMPLICATIONS WHILE IMPLEMENTATION

According to Shariah rulings paper notes are equal to gold and silver and since they have replaced these metals, all accepted rules of gold and silver are apply on these as well. These include: 1. 2. 3. The rules of Zakat. The use of paper notes to pay Zakat. No form of Riba, such as Riba Al-Fadl, Riba Al-Nasiah and Riba An-Nasa, is permissible on paper notes. The exchange of notes of similar denominations, or the exchange of notes with those representing gold is prohibited. It is allowed to exchange a note representing silver with one representing gold. During all transactions, it is mandatory to be in possession of the notes. Money exchanges are allowed when all conditions are followed.

4.

ANALYSIS
The use of paper notes as an alternate to gold or silver does not imply that these metals are the actual medium of exchange. Paper notes are a secondary medium and therefore it is not necessary for the rules of gold or silver to be applicable on this medium. Paper notes have purchasing ability because of their Samaniat. Even though Fuloos has also been used throughout history, it is not equivalent to gold or silver in the same capacity as paper notes. For this reason justification is not strong enough. Additionally, since paper notes are not backed by gold or silver, it is questionable how the rules of Zakat and Riba will apply to them. The ambiguity in deciding which denominations of notes are equivalent to gold or silver and which are not

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76 creates extensive room for error against the core philosophy of Islam. For this reason the Quran and Hadith do not concur with this viewpoint.

PAPER NOTE AS A CUSTOMARY PRICE AND ITS TREATMENT AS FULOOS

According to the fourth viewpoint, paper notes hold artificial value and hence should be placed in the same category as Fuloos. This means that a paper note is not a certificate of debt, an alternate for gold or silver, urooz, or their substitute. Paper notes are actually Saman and since they are assumed to have an inherent value, they should be treated as Fuloos as per the rules of Shariah. A majority of Ulema concur with this viewpoint including, the author. The opinion of Sheikh Abdullah bin Salman, member of Darul Afta, Riyadh, clearly asserts that a large number of reputed scholars agree with this viewpoint. He declares this stance to be relatively closer to what is correct and cites the ones who agree as impartial. He writes, " ) " ( According to this concept paper note is like Fuloos due to its Samaniat. Therefore rulings related to Riba, Zakat, and forward sale when conducted with Fuloos will also be applicable on paper notes. A large number of reputed scholars concur with this viewpoint. All those who agree with this concept stand between (a) those who believe that paper note is like Arz (singular of Urooz), and (b) those who consider it as a certificate of debt. (Therefore this point of view is balanced among the two extremes already discussed) and in my opinion this viewpoint is 1 relatively more appropriate and justified. This statement clearly reflects the stance of Sheikh Salman which is very much in favor of the said viewpoint. According to him: a)
1

A large number of reputed scholars agrees with this viewpoint.

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77 b) He declares those who agree as impartial. c) He also declares this point of view relatively closer to what is right. Sheikh Ahmed Khateeb comments in the same context: " " ( ) All explanations have clarified that paper notes, in their endogenous 1 and exogenous characteristics, are similar to Fuloos made of copper. According to Sheikh Abdullah bin Bassam, " ") ( These notes are not gold or silver but are like fiat currency. They change with the change of cultures, or due to economic recession (), or even because of dissolution of governments, just like coins of Naikl (). Therefore if paper notes resemble and relate more to the coins of Naikl (), then it is better to compare paper notes with them and their rulings should also be ascribed accordingly because these rulings are 2 most liked. The scholars belonging to the board of Ulema-Kabar, Saudi Arabia collectively state, " " Paper Notes are considered money like gold, silver and other currencies, and its characteristics would depend on its issuer, i.e. a note from one issuer will be different from a note from another. This means Riyal from

1 2

Ibid ----------------------------------------------------------------------------------------------

78 Saudi Arabia is a different currency then American dollar; hence each 1 currency note has a unique nature. In the words of Sheikh Ahmed al Bana, " " I consider it right to apply the rulings for gold and silver on paper notes. Paper notes are used as a medium of exchange just like gold or silver and the bearer of notes can fulfill his needs whenever he wishes. Anyone possessing paper notes in amounts necessary for the qualification of 2 Zakat, for an year or more, will most definitely have to pay Zakat. Justice Mufti Taqi Usmani states: " " After the discussion it has been clarified that paper notes are no longer certificates of debt. Now they qualify as fiat currency. Scholars termed them as Fuloos Nafiqa because their face value is many times greater than its actual value (cost of its material and making). Same is the case with paper notes and still they are regularly used for trade. For this 3 matter there isnt any difference between Fuloos and paper notes Dr. Muhammad Suleman al-Ashqar concurs with the view: "

-- ---------------------------------------------) ( -------------------------------------------------------------------------------------------------------------------- 3 ----------------------------------------------------------------------------------------- ) (

2

79 " The third verdict (on paper n otes) confirms it as currency / money which can be used like gold and silver, though it differs in essence. It is not gold or silver, not even equivalent to gold or silver in quintessence, rather its nature depends on the issuing authority. For example dinar of Kuwait is different from the dinar from Iraq and American dollar is totally different then these two. Similar is the case with other currencies. It has just one justification i.e. paper notes have purchasing power (feature or Illah) just like gold and silver (though different in nature). In the countries where Shariah is followed, the same justification is assumed correct and most Muslims perform their business in the same context. A number of scholars (Mufti) have developed rulings (Fatwa) based on the same viewpoint and some resolutions have also been passed from certain 1 Institutes of Jurisprudence. The essence of Dr. Ashqars above analysis brings forth some important points: 1. 2. Paper note is real currency, contrary to the view which established it a certificate of debt or Urooz. Even though paper notes differ in basic characteristics, they can be used just like gold or silver. Therefore paper notes perform just like these metals when used in trade. This however does not mean that paper notes are equivalent to or a substitute for gold or silver. Paper notes are also not judged with the same rulings which apply to gold or silver, as this would contradict the viewpoint under discussion. The justification for this opinion is that the Illah or the purchasing power of paper notes is comparable to gold and silver. Gold and silver are Muqees Alia ( )and paper notes are Muqees (). Samaniat or the purchasing power is the Illah or the feature and the qualifying condition common between these three mediums. This viewpoint is accepted and used in daily transactions in all countries which follow the laws of Shariah. Scholars have devised rulings accordingly and institutes of jurisprudence have passed resolutions

3.

4.

------------- --------------- ) (

80 supporting this view. All these factors further strengthen the legitimacy of this view. According to a resolution passed by the Islamic School of Jurisprudence, Jeddah: " -" Paper notes are artificial money and have firm purchasing power. All the rulings on Riba, Zakat and forward sale in context of gold and silver 1 are also applicable on paper notes.

JUSTIFICATIONS C ONFIRMING THIS VIEWPOINT

1 Justification: Paper notes have taken the form of legal tender and the public is legally bound to use them just like they are bound to use contrived currencies like coins. Contrary to this, the public is not bound to accept other forms of exchange. For instance, a person is not bound to accept a bank check from his debtor in lieu of his loan but is legally bound to accept the payment in the form of paper notes. As discussed earlier, currency notes have been declared unlimited legal tenders. 2 Justification: It is legally permissible to issue certificates of debt, common examples being notes payable or accounts payable. However the general public is not allowed to issue paper notes. 3 Justification: Paper notes have purchasing power and are used as a medium of exchange. This further indicates that they are not a certificate of debt or gold or silver. 4 Justification: People still use coins for sale and purchase in the market and do so without thinking twice about whether or not they are backed by gold or silver. Similar is the case with paper notes when these are used as a medium of exchange. Keeping this point in mind, it cannot be assumed that these notes are certificates backed by gold or silver nor can they be considered a substitute for these metals or even Urooz.
1 -----------------------------------------------------------------------------------------------------) (

st

nd

rd

th

81 th 5 Justification: In analyzing the evolution of gold and silver as a medium of purchase, it is evident that considerable time has elapsed since money was backed with gold or silver. It is hence illogical to assume paper notes to be certificates of gold or silver or even their substitute. The opinion of Geoffrey Crowther quoted earlier reflects on this issue. 6 Justification: As discussed earlier, a number of difficulties can potentially surface in assuming paper notes to be Urooz or certificates of gold or silver. Primarily, this multiplies many times the risk of Riba in transactions. Additionally, the principle of Prohibition of Evasive Legal Devices () , which is very critical from the Shariah point of view, is likely to be violated. This is because in declaring paper notes to be Urooz and allowing Riba Al-Fadl, the business of money exchange accommodating Riba Al-Fadl becomes a norm. 7 Justfication: In declaring paper notes to be certificates of debt or Urooz (), business dealings will get unnecessarily complicated as per the rules of Shariah. These complications can be avoided when paper notes are acknowledged to be different in essence than gold or silver though they are nonetheless a form of money with purchasing power. 8 Justification: The Illah of Riba for currency, as discussed earlier in the verdict on Riba, is the intrinsic purchasing power or Samaniat Mutaliqa. In the presence of this Samaniat, all related rulings of Riba will apply. For this reason paper notes are treated accordingly. 9 Justification: Paper notes fall within the category of money as defined in the earlier chapters. 10 Justification: All the functions of money discussed in the first chapter correspond with the inherent functions of paper notes. This further establishes 1 paper notes as money.
th th th th th

--------------------------------- ) ( ) ( * )* ( * * *

82

STATUS OF PAPER NOTES IN JURISPRUDENCE

On the basis of the above justifications, following are some popular verdicts legitimizing the status of paper notes. 'Paper notes are themselves As man (plural of Saman) and for this reason the rulings of gold and silver are applied on it. The only difference is that gold and silver are a natural form of money while paper notes are fiat or artificial money. Paper notes are neither certificate of debt nor are they Urooz. They are also not a substitute for gold or silver. Outstanding reasons which have successfully established the status of paper notes as a preferred form of money include the following: 1. 2. 3. All definitions of money are fully applicable on paper notes. Paper notes are able to perform all economic functions. In accepting paper notes as money and Saman, all matters related to Zakat, forward buying, Musharakh or Mudarabah can be conducted with ease. 4. The virtue of paper notes authenticate all rulings of Riba. The critical principle of Shariah Prohibition of Evasive Legal Devices ( ) is also not violated. 5. Paper money is no longer backed by gold or silver as was done in earlier times. 6. Paper notes are acceptable forms of money in all geographical locations and culture. 7. The public uses paper notes irrespective of the fact that they are no longer backed by gold or silver. 8. Paper notes are legally enforced as money. 9. Only the central bank of a country reserves the right to print paper notes or mint coins. 10. Paper notes remain valid irrespective of changes in government. Changes in regimes do not interrupt the prevalent denominations or modes of paper note printing.

83 Given these reasons, the majority of Muslim scholars have accepted the use of 1 paper notes as money and have devised rulings accordingly, as discussed earlier. Caution: It would have been possible to concur with the opinion of those who claim paper notes to be certificates of debt only if they had been backed by gold or silver. But in the absence of this condition in present day and age, it is not logical to do so. It is always been an acceptable principle of Shariah to offer flexibility in accommodating special rulings as per current need of the time due to unforeseen upheavals in social trends. The issue of paper notes falls within this category of rulings. At the start of their inception, paper notes were certificates which later evolved into Asman. Therefore any differences in opinion related to paper notes are in fact the result of the disparity in rulings tailored to the unique status of paper notes during certain points in time. Advantage: Among the four viewpoints, the first one on certificates and the second on paper notes are similar to Urooz and differ distinctly from the last two views. The last two viewpoints closely match each other and are in agreement that paper notes are not certificate or Urooz but are Asman possessing Samaniat. The third viewpoint asserts that paper notes are not Saman in themselves but are categorized thus because they are a substitute for gold or silver. For this reason, paper notes are applied with some of the same rules used for gold or silver. This however does not mean that the nature of paper notes and that of gold or silver is similar. Paper notes is fiat money, like Fuloos, and their exchange will not be considered money exchange as per the jurisprudence definition of money exchange. Since gold and silver are natural money therefore the rules of money exchange will apply to these. Details of this will be discussed later.

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84

CHAPTER-4: FULOOS
Fuloos is the plural of Fals, meaning small coin. The words Iflas, poverty, and Taflees, when the ruler calls someone poor, are also derived from the root word 1 Fals. Terminologically, Fuloos are forged or molded pieces of copper used as 2 coins. They are also referred to as Fuloos-e-Nafiqa or Fuloos-e-Raija.

SUMMARY OF THE EVOLUTION OF FULOOS

1. 2. 3. Before and after the advent of Islam, items like eggs or wheat were commonly used as Fuloos in transactions. The next step in the evolution of Fuloos was the use of irregular pieces of copper as a medium of exchange. The formal form of Fuloos emerged when copper was forged or minted into the form of coins. Eventually Fuloos acquired a legal status when each coin or Fals was dated and had the name and title of the ruler engraved on one side and the name of the country on the other. st Fuloos became so widespread during the era of Zahir Barqooq in 781 Hijri that they almost replaced the dirham. According to some historical accounts, there came a point when the ameer or governor of the time

4.

---------------- ---- ) ( ------------------ ----------------- ( ) " )(" ( ) " )( " ( )" ( )( ( )

5.

85 produced Fuloos is huge quantities and nearly suspended the use of the dirham in trade. Fuloos was used both on account of their weight and quantity. Later, the quantitative use of Fuloos became more customary. Hence Shariah rules 1 regarding Fuloos are formulated accordingly.

DIFFERENCE OF OPINION ON FULOOS BEING SAMAN IN JURISPRUDENCE

According to some jurists the scope of money as pertains to its usage in trade is very broad and Fuloos is also considered within the scope of this definition. This inclusion of Fuloos within the general boundaries of money has resulted in creating a point of contention between jurists as some see Fuloos as Saman and some do not. These differing opinions are elaborated further with supporting evidence and related references. After Tatbe and inductive analysis on the opinion of jurists, the following three major opinions have emerged regarding the issue: 1. The first group of scholars are from the Hanafi School of Thought and hold the opinion that Fuloos is Saman. Scholars in this group include Imam Muhammad (RA), Muhammad bin Al-Fadl, Allama Sarkhasi, Allama Halwani, Hazrat Malkia, Allama Ibn-e-Taymiyya, and Allama Ibn-e-AlQeem. The second group of scholars are also from the Hanafi School but believe that Fuloos is not Saman. This group includes Imam Abu Hanifa, Imam Abu Yousuf (RA), and Hazraat-e-Shafia. The third group consists of scholars from the Hanbali School of Thought. This group is further dividied into those who agree that Fuloos is Saman and those who do not. Imam Ahmed ibn Hanbal was among the ones who agreed that Fuloos is Saman.

2.

3.

------------ - ( )

86

THE OPINIONS OF THE FIRST GROUP

The stance of Imam Muhammad (RA) that Fuloos is Saman is confirmed by his prescribed rulings on Riba, forward buying, Musharakah, and Mudarabah. Allama Kasani states the following on the ruling of riba: " " "As per Imam abu Hanifa and Imam Yousuf, sale of items other than eatables or those among Ma'dodat-e-Mutaqarba ( ) are allowed against the same item with an excess only in case of spotexchange. For example, one coin can be sold for two coins if their value is based on judgment. However this is not allowed by Imam Muhammad (RA). Imam Muhammad (RA) holds this opinion because according to him Fuloos are Saman and are like gold or silver therefore their sale is not allowed as described. Their Samaniat is proved because they are used to measure the value of items, just like dirhams and dinars. Because Fuloos serve the same purpose, they are assumed to be Saman. For this reason if Fuloos are compared with items of different nature or same nature and in equal proportions, then they will be considered Saman for obvious reasons. Therefore their value cannot be based on judgment, as is the case with gold or silver and the judgment of their value is not the criterion. Consequently this makes exchanging a Fals for Fuloos (Fuloos having an identified rate of exchange in the market) impermissible, particularly when it qualifies as Saman. In such a case the additional Fals will be in excess, which will render the transaction an obvious case of 1 Riba..."

----------- ( )

87 The following notable points can be extracted from this statement: 1. 2. 3. As per Imam Muhammad (RA), the sale of Fuloos for more Fuloos is forbidden. This is due to the Samaniat found in Fuloos. The logic behind the presence of Samaniat in Fuloos is associated with their characteristics which are similar to dirham and dinar. Hence Fuloos qualifies as Saman. Transactions can only be made with Fuloos or Fals if Fuloos qualifies as saman. Hence it is mandatory for Fuloos to qualify as Saman first. Fuloos are Asman and the value of Saman or its rate of exchange is already identified in the market. Hence the personal judgment of the buyer or seller regarding the value of Fuloos is unacceptable and groundless. It can therefore be said that the traits of Fuloos are similar to dirham and dinar. Every piece of Fals is identical to the other. Hence exchanging more Fuloos for less or vice versa will be considered usurious and is prohibited. During the sale of less Fuloos for more, if the Fuloos are identical then according to the Illah of the transaction, Nasa will be prohibited.

4. 5.

6.

7.

Allama Kasani states the following in context to Shirkat and Mudarabaht: " "

: ) ( )( ( ) )( ) (

88 "It will be prohibited to conduct Shirkat and Mudarbat with Fuloos if they are falsified or uncommon (different from those in use), as they will rather qualify as Urooz. Even if Fuloos are genuine (commonly accepted for use), then according to Imam Abu Hanifa and Imam Yousuf their use in Shirkat will still be prohibited, but as per Imam Muhammad (RA) it is permissible. There is another basis of this debate that Fuloos (which are commonly used) do not always qualify as Saman because their value is Identified on judgment at some stage (like their exchange rate with dirham or dinar). For traders they are acceptable as a medium of exchange. Imam Muhammad (RA) assumes that Fuloos-e-Nafiqa (used commonly) must possess Samaniat, therefore Fuloos should be recognized as Asman Mutaliqa. For the same reason, Imam Muhammad (RA) doesn't allow sale of a single Fuloos for two. Henceforth for Shirkat, using Fuloos as 1 capital like other Idenfieid Asman is permissible." It needs to be noted that in instances of Shirkat and Mudarbat, the capital must be present in the form of liquid cash; assets may not be used in lieu of capital. For the same reason, the use of Fuloos for Shirkat and Mudarbat is stressed also. However Imam abu Hanifa and Imam Abu Yousuf (RA) disagree with this view. Allama Kasani has emphasized that the opinion held by both Imam Hanifa and Imam Yousuff is evidenced in a famous and well known tradition ( ) . There is another well known tradition which states to the contrary. According to this tradition, Imam abu Hanifa and Imam Abu Yousuf (RA) have agreed that Shirkat and Mudarbat are permissible via Fuloos. This statement is found in Tanveer Al-Absar Matan Adar Al-Mukhtar, "" " and Shirkat Mafawda and Shirkat Anan are inappropriate in absence 2 of gold, silver and Fuloos."

----------------------------------------------------------------------------------------------------------- )( 2 ------- ) ( )(

89 This statement associated with these two Imams confirms that it is correct to do Shirkat and Mudarbat with Fuloos. However the tradition of the two Imams which is given credence in this issue is the one stating that Shirkat and Mudarbat is impermissible when conducted with Fuloos. In a popular book Kitab Al-Usul by Imam Muhammad (RA), Salam or forward buying is declared permissible. Apparently, Imam Muhammd has reverted his opinion on Fuloos for this case (Shirkat and Mudarbat with Fuloos) as he also permits the use of Fuloos in Salam. A condition which renders a Salam contract correct is that the value of Mubay or item against which the sale is made, should be identified on judgment. This is the reason why BaySalam or forward buying with dirham or dinar is incorrect because their value is not judged by the trading parties. But since forward buying with Fuloos has been permitted by Imam Muhammad (RA), it is obvious that he has negated its Samaniat, characterizing Fuloos as Urooz. This point emerges again in the renowned jurisprudence book Tuhfat-ul-Fuqaha() : " : " " " "Imam Muhammad (RA) has deemed Fuloos permissible for Salam in Al1 Usul." In context, in Kitab Al-Usul, Imam Muhammad (RA) has quoted the opinion of Imam Abu Hanifa and Imam Abu Yousuf (RA). This leaves no reason to believe that Imam Muhammad (RA) had changed his verdict in any way. The author of Kitab Al-Fuqaha or Tuhfat ul-Fuqaha confirms this with the following statement: "" "It is necessary that this issue be based on the opinion of Imam Abu Hanifa and Imam Abu Yousuf (RA), whereas according to Imam 2 Muhammad (RA) this issue is not correct." Therefore Allama Kasani clearly writes about Salam: " "

1 --------- ) ( Ibid

90 "The quantitative use of Fuloos in Salam is correct according to Imam Abu Hanifa and Imam Abu Yousuf (RA), but not for Imam Muhammad (RA). This is because Fuloos is Asman hence impermissible for Salam. Similarly forward buying (Bay' Salam) is also not allowed with dirham 1 and dinar... In the light of the discussion related to the intricacies of Riba, Musharakat, Mudarabaht, and Salam or forward buying, it is clear that according to Imam Muhammad (RA), Fuloos qualifies as Saman. To the contrary, according to Imam Yousuf and Imam Abu Hanifa, Fuloos is not Saman since they find them devoid of the characteristics of Samaniat. An opinion shared by Muhammad bin Al-Fadl, Shams Al-Aema Al-Sarkhasi and Shams Al-Aema Al-Halwani states: " " "In this rule, some scholars of Hanafi School are on agreement with Imam Muhammad (RA). Muhammad Bin Al Fadl, Allama Sarkhasi and his 2 teacher Allama Al-Halwani have also adopted this opinion"

O PINION OF S CHOLARS FROM M ALIKI S CHOOL

Though the general consensus of the scholars of the Maliki school is that Fuloos are Asman, there are some scholars who deviate from this opinion. Also while certain scholars assume Fuloos to be entirely prohibited, going as far as to deem them reprehensible (), others consider them permissible. The majority of the Maliki scholars however agree that the sale of Fuloos is prohibited and illegitimate. According to Justice Mufti Taqi Usmani, " " "... for this reason the sale of a Fals (singular of Fuloos) with two Fuloos is illegitimate and as per this law ( )Malik Bin Anas and Imam Muhammad (RA) 1 consider it equivalent to Riba and hence illegitimate ... "

1 2

-------------- ----------------- )( ) ( )( -------------------------------------------------- ) (

91 However it cannot be assumed on the basis of this particular difference in opinion that contention also exists within these scholars on Fuloos being Saman; the entire Maliki school is in agreement on this point. The Author perceives the issue similarly. There are a couple of reasons why the scholars of the Maliki school are in agreement on this point: 1 Reason: Assuming that Fuloos are equal to gold or silver according to the Illah of Samaniat, they should be applied with the same rules ascribed to gold or silver. Consequently just as it is illegitimate to sell one dinar or one dirham for two, it is illegitimate to sell one fals for two. However a point which can be raised here is that Fuloos are asman though they are not similar in any way to gold or silver and hadiths and traditions specifically quote only gold and silver. Therefore there is room to consider this illegitimate, creating confusion. Hence to help avoid inaccuracy in judgment and undue disputation it is recommended that the matter declared disliked or makrooh (). 2 Reason: The Illah for Riba may or may not be the quantity when the medium of exchange is gold or silver. Those who consider quantity to be the Illah assume differences in exchanges of gold and silver on the basis of quantity to be Haram or illegitimate while the ones who do not consider quantity to be the Illlah consider considered these differences permissible. Those who are in confusion 2 over the issue consider it disliked or makrooh(). Al Madonah ()the famous book by Hazrat Imam Malik states, : : " : : : : : " "I asked if I could purchase dirham for Fuloos and acquire the physical ownership at another time? He said that this is impermissible by the verdict of Imam Malik and it is corrupt. Imam Malik has also told me that
1 2

st

nd

---------------------------------------------------------------------------------------- ) ( -- )(

92 there is no good in credit sale of gold or silver with Fuloos, and even if people start using hides (animal skin) abundantly as a medium of exchange or Fuloos, I will also declare their credit sale with gold and silver as disliked (). I asked if I purchased a gold ring with Fuloos and delayed the possession to another time, then would it be permissible for Imam Malik? He said As per Imam Malik it is not permissible to trade Fals with Fuloos (more than one Fals)... Lais Bin Saad, Yahya Bin Saeed and Rabia in a tradition are said to term those dealings of Fuloos for Fuloos as reprehensible where there is an increase on one side or if there is credit, and said that Fuloos are now like 1 coins of dirham and dinar (in usage)." : : " " : and Imam Malik has narrated: I consider it reprehensible in Fuloos, however I dont consider this matter illegitimat e as it is in case of dirhams and dinars. I asked if it is legitimate to sell a Fals for two? He 2 said that the sale of a Fals for two is not legitimate. Allama Ibn-e-Taymiyya (RA) also belongs to the first group of scholars who consider Fuloos to be Asman. His Fatawee on the subject confirm his opionion: " " It is explicitly prohibited because the rules of Asman are imposed on Fuloos Nafiqa () , and they are generally considered as a 3 standard of value in trade. " "

- --- ( ) ( 2 ---------------------------------------------------------------------------------------------------------- ) ( 3 -------------------------------------------------------------------------------------- )(

93 When Fuloos are assumed as Asman (plural of Saman), then the definition of Asman is applied on them, therefore there will be no more 1 credit sale of Saman for Saman. Allama Ibn-e-Al-Qeem also consider Fuloos to be Saman. He writes, " " Saman is the standard of the value of items Therefore it is necessary that there is a Tehdeed ( )for Saman which is also Manzbat () 2 so that there isnt any fluctuation in its value. " " I have seen conflicts among people and the damage that was caused. The use of Fuloos as tradable item and as an instrument to earn profit caused a lot of harm to public and injustice has also become obvious. If Fuloos would have been declared as Saman with no fluctuation in its value, used as a measure of value of items, or its value would not have been derived from any other item, then the public would have been at 3 peace. In his statement Allama Ibn-e-Al-Qeem clearly asserts that not considering Fuloos as Saman will only be a source of unrest in society with chances of injustice in economic and financial transactions. The second point emphasizes that Fuloos is money rather than a tradable item. The details of this have been discussed earlier.

THE SECOND GROUP: IMAM ABU HANIFA AND IMAM ABU YOUSUF (RA):
As per the opinion of these scholars, it is not necessary for the characteristics of Samaniat to be present in Fuloos. This contends that the value of Fuloos can be identified on judgment, whereby invalidating the rules of Fuloos enacted by Imam Muhammad (RA).
1 2

Ibid ------------------------------------------------------------------------------------------------------- ) ( 3 Ibid

94 Imam Shafii (RA): The scholars who belong to this group also consider Fuloos as Saman. Allama Kohaji (RA) states the following in context of the Illah of Riba: " " Illah of Riba in case of Gold and Silver is Samaniat, which is not found in 1 Urooz and Fuloos. According to Allama Noovi (RA): " " When Fuloos starts to be used in trade like money, then any excess will not be considered illegitimate. This is correctand has been described by 2 the author in detail. Majority of scholars also agrees. Caution: Arab scholars have clearly suggested that the scholars of the Shafi school do not consider Fuloos to be Asman. Allama Kohajis above statement also confirms this. However an analysis of jurisprudence literature of the Shafi i school reveals that this statement does not negate the inherited Samaniat of Fuloos. What is negated here is Samaniat-e-Johria or Samaniat-e-Ghalba whereby it is affirmed that the Samaniat in Fuloos is neither ornamental or Johria, or natural or Khalqi. In the view of these scholars, the Illah of Riba in Naqood or cash is Samaniat-e-Johria. Since Fals does not possess this characteristic or Illah, therefore they allow the sale of less Fuloos with more. Basically these scholars do not entirely disqualify Fuloos from being Saman but maintain that the Illah of Samaniat-e-Johria is absent in Fuloos. This negation can be understood more clearly by the example of a student who didnt come to school without his notebook. This statement does not imply that the student never came to school.

----- )(-- ( ) -------------- --------------- (

95 What it means is that he never came without his notebook. Similarly the negation of Samaniat-e-Johria doesnt imply the negation of Samaniat entirely. Hence in this certain school of thought, Fuloos Nafiqa also qualifies as Asman but it is not Asman-e-Johria. For this reason the Samaniat of Fuloos will be considered to be the illah of Riba as per the Shafii School. This consequently renders the sale of less Fals with more as legitimate. Following is a statement in this context: : : " " As per the majority of scholars, Illah in case of gold and silver is their capacity of Samaniat-e-Ghalba, which can also be termed as Johria Asman ( ) there is a tradition which asserts the rule of Riba in case of indentified Fuloos. Hhowever it is true that Riba has nothing to 1 do with it, as they (Fuloos) dont possess Samaniat-e-Ghalba. It is mentioned in Hawashi Sharwani: "" The Illah of Riba is the Johriat (basic value) of Saman therefore in case 2 of identified Fuloos there is no Riba.

OPINION OF SCHOLARS OF HANBALI SCHOOL OF THOUGHT

Jurists who belong to the Hanbali School are divided into two groups where one nd considers Fuloos to be Saman and the other does not. The 2 tradition is however seen to be more firmly established within the Hanbali school of thought 3 according to which the sale of a Fals with more is illegitimate. Hence the majority of scholars and jurists view Fuloos as Asman and the sale or purchase of

1 2

------------ ---- ( ) ------------------------------------------------------------------------------------ )( 3 - ) ( : () (: )( ) : )(

96 Fuloos for Fuloos as illegitimate when done with an increase or decrease on either side. The established opinion on Fuloos states that: 1. 2. 3. 4. 5. Fuloos are Asman Their value cannot be identified by mere supposition or speculation. Their exchange with any reduction or increase in quantity is illegitimate. Shirkat and Mudarbat can legitimately be conducted with Fuloos. Forward buying with Fuloos is not permissible.

The preference of jurists for this established opinion is based on the extensive contemporary use of Fuloos in trade just as gold and silver were used in prior times. Here Fuloos effectively performs the functions of money and the definitions of Zarr or money can all be applied on Fuloos as well. It is hence appropriate to term Fuloos as Asman and there is no reason why it should not be treated like Naqood or money. The scholars who agree on the Samaniat of Fuloos include Imam Muhammad (RA), Imam Malik, Imam Ahmed, Shams Al-Aema Al Sarkhasi, Shams Al-Amea AlHalwani, Muhammad Bin Al-Fadl, Allama Ibn-e-Taymiyya, Allama Ibn-e-Al-Qeem, and the majority of contemporary scholars and jurists.

97

CHAPTER-5: MONEY EXCHANGE ()

When analyzed by itself, the term Surf in BaySurf ( ) has a number of different literal meanings which include to transport, to look away, release or letting a person go, expenditure, excess or increase, repentance, aesthetical appeal, and to shout or create noise. The terms Serfi (), Seroof (), and Sarraf ( )are its verb forms. When Surf is analyzed in context of the contract of Surf (), the word implies to a transaction made for a gain. It is a sale contract in which money is exchanged with money or profit. As discussed earlier, money cannot yield a direct benefit like cereals or cloth etc. Therefore Aqd-e-Surf is a trade done for profit earned over exchange of money. A theory for why this term is used for such an exchange is because during earlier time when gold and silver were weighed on measuring scales, it created a typical sound. Since Surf also means to shout or to create noise, hence the name 1 BaySurf.

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98

TERMINOLOGICAL MEANING OF BAY SURF

The definitions for the term BaySurf differ between different schools of thought. The scholars belonging to the Hanafi, Shafii and Hanbali Schools define BaySurf as The sale or purchase of Saman or money against Saman or money, regardless of where it is in different or similar form (). In this chapter the term Saman is used for Saman-e-Khilqi or natural money such as gold or silver irrespective of its shape. Hence this gold and silver can occur as dinar, dirham, utensils, jewelry and bars. The rules of BaySurf do not cover the exchange of Saman-e-Urfi or Fiat Currency such as currency notes or Fuloos. The exchange of Saman-e-Urfi needs to be analyzed under different rules. According to Allama Haskafi (RA): " " "As per Shariah, Bay' Surf is only about sale and purchase of Saman for Saman, i.e. Saman-e-Khilqi, even if in the form of utensils (jewelry, bars etc); however on both side of exchange the form could be same or even 1 different (like utensils being exchanged for jewelry)." Allama Marghinani states in the same context: " " If value of the subject matter is based on the judgment of trading parties like in the case of exchange of utensil for utensil; or if value of subject matter is not based on judgment like in case of exchange of coins for coins; or if items - whose value is judged are exchanged for items of identified value (like dirham or dinar), then all these types of exchanges can be categorized as Bay' Surf as confirmed in a Hadith. Secondly

) ( ) ( : ) ( )" " ( 1 ------------ --)(--

99 despite involving Saman-e-Khilqi, still there remains a chance of Riba even if value of items is judged. Therefore due to this possibility, it is mandatory for the trading parties that the subject matter be in their 1 ownership (of the item exchanged)." The above statement confirms the following points: a) Utensils or jewelry of gold and silver and their mandatory presence on one or both sides of the exchange. b) The presence of dirham or dinar on one or both sides of the exchange. c) The exchange of dirham and dinar for utensils and jewelry of gold or silver. In short, all item/items in the exchange must qualify as Saman-e-Khilqi and it is mandatory for the item/items to be in the ownership of the buyer or seller at the time of exchange. There are a number of reasons why the exchange of items other than Saman-e-Khilqi do not qualify as BaySurf. In the opinion of Allama Nasfi: " " "If purity (of gold or silver content) is doubtful then it will not be dealt with rules related with dirham and dinar. For this reason an increase or excess will be allowed during exchange and as per known tradition it would be correct to trade them by quantities or weight. Since they are 2 Asman therefore their value will not be based on judgment." Elaborating this further, Allama Ibn-e-Najeem says: " " : "

---- - ---- ) ( )( 2 ------------------------------------------------------ ( )( )

100 This statement (of Allama Nasfi) since they are Asman therefore their value will be based on judgment, asserts that until the unit of exchange is popular or public have declared them Asman, their Samaniat will remain dependent on this custom, and will remain so till the demand 1 persists among public." In short, if the coins in common usage have impure contents of gold or silver creating the chance of falsification in trade, then their sale with lesser or greater quantity, corresponding to their impurity, will be allowed. Despite similarity in shape and appearance, their value cannot be supposed or judged by trading parties. This is because they are Asman-e-Urfia or commonly accepted Asman with identified value. Therefore such transactions will not qualify as BaySurf because they contradict the rules defined for money exchange. In these transactions, Saman which does not fulfill the requirements of Saman-e-Khilqi is traded with other Saman of similar value or nature of impurity. These transactions do not qualify as money exchange or BaySurf. Hence the excess or increase is allowed on both side by scholars even if the shape and appearance of items being exchanged are identical. It is additionally indicated by the jurists of the Hanafi School that the presence of Saman-e-Khilqi in any form or shape is mandatory for a transaction to be declared a legitimate money exchange. However if the value of an item has not been judged by the trading parties but has been publically established then that is sufficient ground for the item to qualify as Saman only. The book Kashaf Al-Kana of the Hanbali School states: " " "Musarafa is sale or purchase of money for money (Saman-e-Khalqi), irrespective of their Jins i.e. their form or shape may be identical or 2 different. The scholars of the Hanbali School use the term Naqdain-e-Tasnia with dirham and dinar or gold and silver. This indicates that the Hanbali scholars have also

1 2

Ibid Ibid (253/3)

101 used the term Naqd for Saman-e-Khilqi or natural money in the context of BaySurf. Maghni Al-Mahtaj is a popular book of the Shafii School of Thought. The book states, "( ) " "(Bay' Surf is sale or purchase of cash for cash) i.e. in gold or silver coins 1 or any other form." In the same book it is also stated: ": " "Sale of cash for cash is called Surf, whether the form of money is same 2 or different". According to Allama Ibn-e-Taymiyya " -" "According to another tradition, bilateral 'cash payments' and possessions are not mandatory; because these conditions are rather mandatory in the case of gold and silver, except Fuloos (as they are not made of gold or silver) and also because Fuloos is categorized as 'goods', 3 and Samaniat is only temporarily associated with them." This is similar to the second tradition of Imam Ahmed which asserts that the presence of Saman-e-Khalqi is mandatory for Surf. Allama Zaheli writes, : " "

1 2

------------------------- ----- ) ( ( ) Ibid 3 ----------------------------------------------------------------------------------------------------- ) (

102 "In context of Shariah, Surf is sale or purchase of cash for cash, whether the form is same or different i.e. gold is exchanged for gold, or silver is exchanged for silver, or silver is exchanged for gold, or gold is exchanged 1 for silver, either in the form of a coin or even in the form of utensil." It is quoted from the book Tatoor Al-Naqood, " : ) : ( -" "Scholars of the Hanafi School have defined Bay' Surf as Sale or purchase of Saman for Saman. According to them these units of exchanges are Saman-e-Khilqi just like the currency used in ancient times i.e. gold and silver in form of coins or dirham or dinar which were the popular form of cash. They could also be in the form of jewelry, like earrings or bangles or even in the form of solid bars. Scholars of Shafii and Hanbali Schools have compared Saman with Naqd (cash) as they have stated that 'Surf' is sale of Naqd with Naqd. Their shape and form could be similar or different. By Naqd they also mean gold or silver, irrespective of their nature. These three Schools of Thought agree on this point that if gold or silver is exchanged with an item of similar nature like gold for gold or silver for silver, it is mandatory that there be no credit, the exchange must be in identical units, and the ownership of items being exchange must be assumed by the trading parties. The definition of Surf stated by the three Imams tells us that only pure gold and silver qualifies for a Surf contract. If it is not pure or if Fuloos is the identified currency, then it will 2 not qualify for contract of money exchange.

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103 It is confirmed from the above statement that Saman should be natural or Saman-e-Khilqi for money exchange and some content of gold or silver must dominate the unit of exchange whether it is in the form of coins, bars, utensils, or jewelry etc. It is under these conditions that the sale transaction will be termed Surf, Tasrruf, or Musarfa according to the three imams. No other term for such a transaction is used other than Surf. The Maliki School however presents three terminologies for this; Muratla, Mubadala, and Surf.

MURATLA
Muratla means to sell gold for gold or silver for silver by weight irrespective of their shape and size. It is however mandatory that the material of the items be similar on both sides of the exchange. For instance a gold coin for a gold coin and not a silver coin for a gold utensil.

MUBADALA
Mubadala means the exchange of coins for coins by quantity such as dinars for dinars and dirhams for dirhams. The material of items being exchanged needs to be similar here as well.

SURF
Surf is the exchange of gold for silver or silver for gold regardless of their physical form. This exchange can be according to the quantity or weight of the items in question. The unit of exchange must be in coin for all the types mentioned above.
1

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The subject of Mubadla and Maratla has been covered quite in detail in the reference mentioned previous page ) ( ( ) ) ( ( ) ) ( :

104

Subject Matter Same Form or Nature By Quantity By Weight Different Form or Nature Surf

Mubadla

Maratla

BAYSURF AND ITS CONDITIONS

In order for BaySurf to be legitimate as per Shariah rulings, there are four conditions which need to be met. Two of these conditions are optional while two are compulsory. 1. 2. 3. 4. Possession of the unit of exchange. Similarity of the nature of money being exchanged. Khiyar Shart (Optional Condition) Ajal or Tajeel (Deferred Payment)

The last two conditions are contingent upon the first two conditions of ownership. Meticulous analysis has revealed that the second condition of
: : : ) ( The summary of these statements are the same as discussed, one thing which should be clear is that in these statements the difference is only of terminologies. As far as the rules are concerned, Malikia School of thought is not much different then the other three. This school only allows a little excess while Maratla (), however their rules about ownership are exactly the same as other three school of thoughts.

105 Similarity of Units Exchanged is of primary importance since it requires that both trading parties be in possession of the money in order to ensure this similarity. In the absence of this condition, the party which possesses the money will gain a bargaining advantage over one which does not. Allama Marghinani (RA) confirms this with the following statement: -"" and ownership is mandatory on the other side because equality is proven and Riba is excluded from the transaction. Also because one party 1 is not superior to the other.

SIGNIFICANCE OF STATED C ONDITIONS

The significance of these stated conditions lies in the fact that failure to comply with any one of these can open the door for Riba. This means that Riba and BaySurf are closely related; if the units of exchange are identical then any excess on either side will qualify as Riba Al-Fadl while Riba Al-Nasa will be created in the case of credit or lack of ownership on either side. For this reason, three of the Imams discuss Riba and Surf in the same sections in their books. In certain chapters, Surf is not treated under a separate title but the issues related to Surf are discussed within the chapters on Riba. Hanafi scholars however discuss the two topics in different sections. Following is a detailed discussion on the four conditions:

1 ST C ONDITION : P OSSESSION
This condition refers to the possession of Saman-e-Khilqi by both parties and means that the trading parties must be in possession of Saman-e-Khilqi at the time and venue of conducting the trade. This is an important and universal condition for all forms of BaySurf. Regardless of whether this Saman-e-Khilqi is in the form of coins, utensils, jewelry, bars and regardless of whether these items on both side are similar or identical, the condition stipulates that they must be 2 present at the time of the contract. This condition has also been made obligatory
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106 due to the possibility that both parties might bind themselves in a contract despite non-possession of the item that they intend to exchange. This will constitute sale of debt for debt ( ) which is prohibited in Shariah. According to a tradition related with Hazrat Ibn-e-Omar (RAA): " : " : Prophet Muhammad (SAW) has prohibited sale of credit for credit. As per tradition from Al-Bazaar, sale of cash for credit and speculative sale 1 has also been prohibited. If only one side is in possession of the subject matter, then the similarity of subject matter and its quantity becomes questionable on the other side. This is also confirmed from the Hadith of six items: " "
if value of Subject Matter is based on judgment of trading parties like in case of exchange of utensils for utensil; or if value of Subject Matter is not based on judgment like in case of exchange of coins for coins; or if items - whose value is judged are exchanged for items of identified value (like dirham or dinar), then all these types of exchanges can be categorized as Bay' Surf as confirmed in a Hadith. Secondly despite involving Saman-e-Khaliqi, still there remains a chance of Riba even if its value is judged. Hence due to this possibility, it is mandatory for the trading parties that the subject matter is in their ownership (of the item exchanged)." ) ( )( )( : ")(" : ) " ( ( ") (
1

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107 Gold for gold, silver for silver, wheat for wheat, barley for barley, date for date, salt for salt, must be equal on both sides and hand to hand. Whoever pays more or demands more (on either side) indulges in Riba. However gold can be exchanged for more silver, similarly dates can be 1 exchanged for more barley at a mutually agreed ratio. " " Sell gold for gold, and silver for silver in equal quantity. Who ever 2 demands an excess will be demanding Riba. :" " Sell gold for gold in equal quantity and dont sell gold for silver in a way 3 that one item is present and the other is absent. This condition means that the trading parties must not leave the venue without taking possession of the gold being exchanged. This is referred to as Iftraq BilAbdan ( )and means that after the contract has been agreed upon but before taking final possession of the subject matter, either one or both parties agree to leave the scene whereby deferring the payment to some other time. This is not allowed. However, if both parties stay for a longer period of time, taking a rest or break, or mutually agree to switch the venue, then this condition would not be considered violated. If the parties take possession of their due subject matter before leaving the venue, then this would indicate compliance to the rules of Surf. Importance of this Condition: The importance of this condition for BaySurf is evident from the following tradition of Hazrat Omar (RAA) and Hazrat Ibn-Omar (RAA): :" "
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2 1

108 According to Hazrat Omar (RAA), dont sell gold for gold unless in equal quantities and dont sell gold for silver if one (party) is missing and the other is present. And if he (buyer or seller) requests for some time so that he can go back to his home (before making the payment) then dont permit him to do so. This sale should be done on the spot i.e. give and take at the same time. I say so because I am afraid that you may get into 1 Riba. It is evident from this tradition that Hazrat Omar (RAA) placed great emphasis on the condition of possession in BaySurf. He did not permit the buyer or seller to enter his home unless both parties had taken physical possession of the subject matter in question. Hazrat Ibn-e-Omar (RAA) placed even greater emphasis on this condition, stating: :" " According to Hazrat Omar (RAA), dont sell gold for gold unless in equal quantities and dont sell gold for silver if one (party) is missing and the other is present. And if he (buyer or seller) requests for some time so that he can go back to his home (before making the payment) then dont permit him to do so. This sale should be done on the spot i.e. give and take at the same time. I say so because I am afraid that you may get into 2 Riba. Some Critical Issues: When the possession of subject matter was made mandatory for the validation of BaySurf, the following critical issues emerged: a) Ibra, Hiba or Sadaqa b) Muqassa Ibra, Hiba or Sadaqa: These three issues are dealt with the same rule and can be understood more clearly with the following example. Za id and Omar do BaySurf of one dinar for another dinar and Zaid requests Hawala from Omar at the time of the contract. This relieves Zaid from the requirement to pay Omar on the spot.
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109 However, since Omar has not done so he still owes a dinar to Zaid. Now if Zaid says to Omar I Hiba this dinar to you or I give you this dinar in charity or I relieve you from the payment of this dinar then this would constitute Ibra, Hiba, or Sadaqa of the subject matter, which is a dinar. Two situations can now emerge: 1. If Omar says that I accept this Hiba, Ibra or Sadaqa, then he will be relieved from the responsibility of paying Zaid. This would render BaySurf as null and void. If Omar refuses to accept Zaids offer then the Ibra , Hiba or Sadaqa will be invalidated and BaySurf will not be assumed concluded. Though Ibra, Hiba or Sadiqa is intended to cancel the contract, it does not do so because Omar has refused to take this offer. Cancellation of contract by one party alone is prohibited in Shariah. Contrary to this, if the possession of dinars is acquired before both parties depart, then this will validate BaySurf.

2.

Replacement of Subject Matter: In the context of the above example, if Omar offers cloth to Zaid instead of the pre-decided dinar then this will not qualify as possession and will be considered as non-acquisition of possession. Hence BaySurf will not be assumed concluded. Similarly if Zaid assumes possession of the dinar before both parties depart, then the contract will be considered concluded. Adjustment: The term adjustment within the context of this ruling is used for creating equal quantities of the subject matter on both sides. Adjustment is of two types; compulsory or involuntary adjustment and voluntary adjustment. Compulsory or Involuntary Adjustment: As the name implies, this adjustment occurs automatically regardless of the will of the parties in question. For instance Zaid gives Omar a credit of 100 dinars. At a later time, Zaid acquires a credit of 100 dinars from Omar as a result of another transaction. This automatically or involuntarily leads to an adjustment consequently leaving no dues on either side since Omars debt will be reimbursed whether Zaid or Omar agree or disagree. If the amount is equal to what was owed, it would balance out the dues. If the amount was less, then the indebted party would voluntary have to pay the remainder of the balance. It is however necessary that:

1. 2.

110 One party be the creditor and the other the debtor. The nature and type of the amount credited and reimbursed must be the same. For instance, both should be dirhams or dinars. Similarly the content of gold or silver in the dinars and dirhams should also be identical. The quantity of the items do not fall within the context of adjustment and only their weight needs to be taken into account.

Voluntary Adjustment: Voluntary adjustment is based on a mutual agreement of the parties involved in the transaction. For instance Omar has to pay 10 dinars to Zaid and Zaid has to give 40 kg of wheat to Omar. If both parties mutually agree to cancel each others dues, then this will be a voluntary and legitimate adjustment. Another example in this scenario is that Zaid sells 10 dirhams for 1 dinar to Omar. It is mandatory for both of them to produce the agreed amounts on the spot.

Omar => 1 Dinar

Zaid => 10 Dirhams

On the contrary if Omar has produced his one dinar for Zaid but Zaid has yet to produce his 10 dirhams for Omar, assuming that Omar owes 10 dirhams to Zaid from a previous transaction, there are three ways of adjusting this payment: 1. Since Omar owed 10 dirhams to Zaid before BaySurf, therefore this adjustment would be ethically correct. It cannot however be considered technically correct since it means that the transaction will conclude without Omar obtaining possession of the subject matter. This can be a voluntary adjustment where it will depend upon the mutual agreement of the parties, otherwise it will render the transaction null and void. After BaySurf, Omar becomes liable to pay 10 dirhams to Zaid, say because of usurpation. In this case an adjustment would be involuntary and compulsory. Omar becomes liable to pay 10 dirhams after Aqd-e-Surf or money exchange contract due to some other contract. For instance Omar purchases cloth for 10 dirhams from Zaid. Omar is now bound to pay 10

2.

3.

111 dirhams to Zaid due to the new sale contract. In this case involuntary adjustment is not mandatory and adjustment can be made with the mutual agreement of both parties. This is also confirmed from an authentic tradition. In the first and third scenario discussed above, adjustment will be voluntary while 1 in the second one it will be compulsory or involuntary.

2 ND C ONDITION : S IMILARITY IN N ATURE OF M ONEY

The second condition implies in the context of BaySurf that the subject matter be of the same nature and form. For instance, if dinars are being sold for dinars and dirhams are being sold for dirhams, then any nature of excess or shortage is prohibited and will be considered illegitimate. This includes the use of superior or inferior types of coins. The subject matter could be in the form of utensils, jewelry, bars or coins. The following Hadith, also quoted earlier, also confirms and mentions all these types: ) :" ( " Sell gold for gold and silver for silver in equal quantities and on the spot. When the type is different (gold being exchanged for silver) than 2 sell as you please, however it is still mandatory to sell on the spot. If the nature of the subject matter is different than similarity is not compulsory. For instance if dirhams are being exchanged with dinars, then excess is allowed as also confirmed by the quoted Hadith. This means that the trading parities can mutually agree upon an acceptable exchange rate. However on the spot possession is still compulsory. The following examples will help the clarify the concept further: 1. 2 dirhams + 1 dinar for 1 dirham + 2 dinars: This transaction is considered legitimate according to the majority of Hanafi scholars since 2 dirhams are being exchange for 2 dinars and 1 dinar is being

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2.

3.

112 exchanged for 1 dirham. Exchange of this nature is allowed because only the form of the unit of exchange is different. 11 dirhams for 1 dinar + 10 dirhams: This transaction is also considered correct because 10 dirhams are equated with 10 dirhams and the leftover dirham is exchanged for 1 dinar. The form is different here and similarity is not required. 10 dirhams for 9 dirhams + 1kg wheat or 10 dinars for 9 dinars + 1 kg wheat: An exchange of this nature can result in three possibilities: a) The price of 1 kg wheat could be equivalent to 1 dirham or 1 dinar in which case there would be no objection in such a transaction. b) The price of 1 kg wheat could be less than 1 dirham or dinar. In this case, a transaction would be allowed but not preferred. c) 1 kg wheat could be free of cost in which case an exchange would be prohibited.

In the second case an excess quantity of gold or silver in exchange of 1 kg wheat is justified since the form differs from gold or silver. However this exchange would still be considered reprehensible because if it had been allowed then there would have been a possibility that people would use it as an excuse to indulge in Riba Al-Fadl or a door to Riba would open. When Imam Muhammad (RA) was asked about this matter, , "How do you picture this situation in your mind? ( 1 ) He replied, "Just like a mountain" ( ) .

3 RD O PTIONAL C ONDITION (K HIYAR - E -S HART )

Before attempting to understand the implication of Khiyar in BaySurf , it is necessary to understand the meaning of the term in general context. A easier way to approach an understanding is to study the three sub types of the concept: 1. 2. 3. Khiyar-e-Shart Khiyar-e-Roiyyat Khiyar-e-Aeb

In the literal sense, Khiyar is defined as follows:

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113 " -" Any trading party that has the right to cancel or initiate the contract, either because a component of the deal is found to be noncompliant to Shariah or due to some condition which has been accepted by the parties 1 at the time of the contract.

K HIYAR - E -S HART
This refers to when Khiyar occurs due to the presence of a particular condition in a contract. In the absence of this condition, Khiyar would also be absent. This is defined as follows: " " "At the time of contract or later, either or both the parties decide on a 2 condition which can cancel or initiate the contract. This means that either party is given a right to cancel the contract or continue with it. According to agreed conditions, either party can use this right to terminate the contract. For instance Omar tells Zaid that he would like to purchase Zaids watch within three days. If he does not do so within three days, then Zaid has the right to cancel the contract. It is imperative to define a time period for Khiyar-e-Shart. According to Imam Muhammad (RA), this period is 3 three days while for some other scholars it is more than three days.

K HIYAR - E -R OIYYAT (C ONDITION OF V ISUAL I NSPECTION )

Khiyar-e-Roiyyat is the right of the buyers which is assumed after the visual inspection of the subject matter. It is defined as: " " " the right of buyer to cancel or abide to the contract if he hasn't seen the subject matter before the contract.
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114 This means that if a buyer purchases an item without visually inspecting it first, such as a modern day online purchases, he has the right to cancel or abide with the contract after he inspects the subject matter.

K HIYAR - E - A E B (C ONDITION OF D AMAGE OR D EFECT )

Khiyar-e-Aeb is defined as follows: " " "This condition is based on a violation of the guarantee of the seller i.e. 1 to provide defect free item within stipulated period of time." According to this definition, if the seller has promised to provide a defect free item to the buyer and the item is found defective at the time of delivery within 2 the time agreed, then the buyer has the right to cancel the contract. In all these conditions there is an option of either cancelling or carrying out the contract. It is now important to examine how these conditions would apply in BaySurf. As discussed earlier, in BaySurf the subject matter must be exchanged and taken into physical possession by the trading parties at the contract table. Therefore the implication of Khiyar-e-Shart in BaySurf is out of context here due to the condition of acquiring physical possession of the subject matter. For instance Omar cannot tell Zaid that he will purchase dirham for dinars or dirhams from him on the condition that for three days they will both have the right to cancel or keep the contract intact. Khiyar-e-Aeb is however applicable in BaySurf. Once both parties acquire the physical possession of the subject matter, the deal or contract is apparently concluded. But at a later time if either of the parties discovers that the dirhams or the dinars they have received during transactions are faulty, then Khiyar-eAeb will become applicable. Similarly Khiyar-e-Roiyyat becomes applicable in 3 BaySurf at soon as a utensil, bar or jewelry made of gold or silver is exchanged. Khiyar-e-Roiyyat will however not be effective when exchanging money for money such as dirhams for dinars.
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115 In short, it Khiyar-e-Shart is made part of the Surf contract then it will render it null and void unless Khiyar-e-Shart is established and dissolved during the proceeding of the contract and physical possession of the items is acquired by both parties before they separate. The contract will most definitely be considered invalid if the meeting among the parties is concluded with Khiyar-e1 Shart. This makes it inadequate for BaySurf.

4 TH C ONDITION : A JAL (D EFERRED P AYMENT )

This condition is also insignificant for BaySurf since its absence is required and its presence in the contract will render it void. This is due to the requirement of the confirmation of the physical possession of the subject matter by both parties before the conclusion of the meeting. If Saman or unit of exchange is due at a later time, then it means that that the condition of the physical possession has been violated. For the same reason, the condition of Ajal is not applicable in BaySurf. It needs to be noted here that Ajal is related to the selling of items of ordinary nature such as furniture, wheat, cloth etc. at a later date. However in BaySurf, the subject matter could also be the money or Saman itself and this is not allowed for both parties to accept at a later time unless it has been mutually agreed upon by the parties at the time of the formulation of the contract. But if the condition related to deferred payment persists, then the Surf contract will be rendered void and it would be wrong to apply the condition of deferred payment.

S OME I MPORTANT P RINCIPLES :

a) It is correct to estimate the value of those items without measuring or weighing for which excess or increase is allowed. On the other hand, it is imperative to weigh and measure with as much technical precision as possible the items for which excess is not allowed. This principle is mutually accepted in all four Schools of Thought. Therefore the sale of gold for gold, silver for silver, or wheat for wheat with an increase in either side is illegitimate. However the exchange of gold for silver, or wheat for barley without exact measurement or estimation of value is permissible. b) It is prohibited to sell gold for gold without precise measurement of value. If measurements are made during the proceedings of the contract and the value is found to be equivalent, then the contract will be ethically correct.

Ibid

116 But if this measuring or weighing is done after the meeting has concluded and the quantities are found to be inequal, the contract will be considered void. c) A shirt for a trousers or a copper teapot for a brass utensil can be exchanged without precise measurement only if the transaction is based on the quantity and not the weight, length or volume of the items under exchange. This is because quantity is not an Illah for Riba. But if the exchange is based on the weight and volume of the subject matter, any excess will fall within the prohibited boundary; weight or any other form of measurement is considered the Illah of Riba and hence impermissible. d) If an item made of impure silver or gold is exchanged with an item of metal, then the ruling for this transaction will depend upon the level of the purity of gold or silver. If the content of precious metals is dominant in the subject matter, then the rules of exchange of gold and silver will be applied. This would prohibit their exchange without precise measurement of weight. To the contrary, if impure metal is dominant in the subject matter, then the rules related to ordinary metal exchange would apply here. For instance if item A made of gold with a dominant amount of copper is exchanged with item B also made of copper then the exchange has to be based on the precise measurement of the weight of both items and no increase will be permissible. However if item A is exchanged with an item made with any other metal besides copper, then an excess on either side will be permissible. e) Silver plated swords are referred to as Saif-e-Mufaddad and gold plated swords are called Saif-e-Mudahhab. When these swords or other items of similar nature are being exchanged with gold or silver, then the following two conditions will be permissible since an excess on either side in allowed in both these cases: i) The exchange of a gold plated sword with silver. ii) The exchange of a silver plated sword with gold. To the contrary if the situation is reversed where a gold plated sword is being exchanged with a gold plated one, and a silver plated sword is being exchanged with a silver plated one then this exchange would have to comply with the following conditions.

i)

ii)

117 This Bay or sale would be legitimate if the amount of gold or silver used in the plating of the sword is less than the amount of gold or silver in the dirham or dinar since the excess gold or silver in the dirham or dinar will compensate for the cost of the other accessories related to the sword such as its cover etc. The scholars of the Hanafi school state, If the subject matter is an assembly of different items made of different materials, some of which are similar to the material content of Saman while other differ, then the Saman will be equated with the items of similar material as the Saman and the Bay will be correct in this case. For instance, the silver plating of a sword is equal to the content of silver found in 50 dirhams and this sword is purchased with 100 dirhams. The buyer pays 50 dirhams to the seller as BaySurf for the silver plating on the sword and promises to pay the remaining amount later. In the transaction the buyer assumes the physical ownership of the silver plated sword. This transaction would be legitimate because the remaining 50 dirhams are in exchange for the sword and its accessories. The deal would hence be viewed as a simple sale with deferred payments which does not make it obligatory for the buyer to assume spot possession. The transaction listed above would not be considered legitimate if the buyer pays less than 50 dirhams since the silver content of the dirhams would be less than the amount of silver in the sword. This means that he still owes the owner an additional amount for the excess silver. This means that the seller would not be able to acquire complete possession in lieu of the total silver plating on the sword, hence violating the condition of spot possession. The sale of the sword is further analyzed under the following scenarios: i) If the sword gets damaged and the silver is separated then the sale will be considered void even if the sale of the sword is viewed independently. ii) If the silver can easily be separated from the sword, then the sale would be correct if the seller can

118 separate 10 gm of silver and sell the sword for say 40 dirhams. f) Another critical issue here is that if the amount of gold or silver in Saman is less than the gold or silver plating on the sword then the difference or excess in this exchange will fall under Riba Al-Fadl and hence will not be permissible. g) Consider an example of a set of ten utensils in which two are of gold and the rest are of chinaware. The utensils of gold are equal in weight to 10 dinars and the set as a whole has a price tag of 20 dinars. If the buyer pays 10 Dinars on the spot and takes possession of the entire set, then this Bay or sale will be correct since the price of the gold utensils has been paid for in full. This transaction is legitimate since it conforms to the first condition of BaySurf which is to take physical possession right at the time and venue of the transaction. However the buyer is still indebted to the seller for the remaining 10 dinars. Since this would constitute a sale of ordinary type, therefore spot possession would not be compulsory. This is correct as per the scenario discussed in point (f) since the items made of gold can easily be separated from the whole set. h) If the buyer promises to pay the remaining amount at a later time, then this would constitute Ajal or sale with deferred payment which though invalid for BaySurf, would be valid for a sale of ordinary type. i) If a piece of jewelry, such as a silver bracelet worth 100 dirhams is purchased for 50 dirhams, the bracelet will remain in mutual and equal ownership of 1 both parties until the remaining amount is paid by the buyer.

SOME IMPORTANT ISSUES IN EXCHANGE OF GOLD, SILVER AND JEWELRY

The following issues necessitate discussion at this point since they are closely associated with BaySurf: Case No. 1: If gold is exchanged for gold or silver for silver, then the quantity should be the same on both sides. It is also necessary for both parties to take possession on the spot. If silver is exchanged for gold or vice versa, then a

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119 difference in amount will be allowed but both parties still need to take possession on the spot. " " Gold for gold, silver for silver, wheat for wheat, barley for barley, date for date, salt for salt, must be equal on both sides and hand to hand. Whoever pays more or demands more (on either side) indulges in Riba, however gold can be exchanged for more silver, similarly dates can be exchanged for more barley at a mutually agreed ratio, but the exchange 1 must be on the spot. Case No. 2: When gold is exchanged for gold or silver for silver, then the purity of material content must be similar on both sides. The sale of pure silver or gold with notably impure silver or gold is prohibited. " ": Sheabi states that once Hazrat Abdullah Bin Masood (RAA) sold dirham and dinars which were impure to some extent with lesser quantity of pure dirham and dinar.When Hazrat Omar (RAA) found out he told him not to do so again. He suggested to heat it to an extent that the contamination of iron and copper is melted away and pure silver is obtained and after extraction of pure silver to sell it with silver of equal 2 weight. : :" : : " Muhammad Ibn-e-Sereen (RA) narrated that once in a sermon Hazrat Omar Bin Khattab (RAA) warned that in sale of dirham for dirham and sale of dinar for dinar, the amount (weight) on both sides must be equal.
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120 Abd-ur-Rehman Bin Aouf (RAA) inquired about sale of impure silver with pure silver from Hazrat Omar (RAA). He said that it is not legitimate, however first it should rather be exchanged with other items and after 1 acquiring their ownership they can be sold again (for pure silver). Case No. 3: One rupee coins are commonly made with metal nowadays and are similar to rupee or rupee coins which were used earlier. Today a ten rupee paper note can be exchanged with these coins. Before the creation of Pakistan, one rupee coins were made of silver but this is no longer the case. When silver coins were in popular use, these rules were applied accordingly. Since silver coins are no longer the norm, the rules of Fuloos of copper are applied on these notes and coins at present time. Case No. 4: Credit sale is allowed with coins of gold and silver. However it is necessary for the buyer to attain possession of the purchased item, commodity or Fuloos. : " " It is stated is Shrah Tahavee that if a person purchases 100 Fuloos for 1 dirham and if either buyer or seller acquire possession of Fuloos or dirham respectively and defer the possession of the other item to a later time, then this sale is legitimate. This is so because the both parties have 2 mutually agreed on the exchange of subject matter with the other.

":" Allama Hanuti (RA) was asked about the credit sale of Fuloos against gold and he said that it is legitimate only if any of the two parties acquire possession of the subject matter. As stated in Bazaria, if a person purchases 100 Fuloos for 1 dirham (or vice versa) then possession by any of the two parties is sufficient to render the contract legitimate.

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121 Allama Sarkhasi (RA) concurs with this opinion: " " When a person purchases Fuloos for dirham and makes his payment but the seller does not have Fuloos in his possession at the time of exchange (he promises to deliver later instead), then this would be legitimate because Fuloos, if commonly used in society, are also an accepted form of cash. We have already stated that the rules of contract of Saman are based on its obligation and existence and it is not necessary for the health of the contract that Saman be in the possession of the purchaser at the time of transaction. However this is not true in case of dirhams 1 and dinars. Since the rules of Fuloos are also applicable on rupees, therefore in the light of the above statement, the sale or purchase of gold or silver against rupees is also legitimate. In this case it would be allowed for one party to deliver on the spot and other to defer payment to a later time. It would however be illegitimate for both parties to delay the possession irrespective of the duration of delay. This is because in this case it would be regarded as sale of debt for debt which is prohibited as per the following Hadith: " :" Hazrat Abdullah Bin Omar (RAA) in a tradition states that Hazrat 2 Muhammad (SAW) has prohibited sale of debt for debt.

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122

BARTER OF GOLD AND SILVER JEWELRY WITH RAW GOLD AND SILVER
Sale or purchase of gold jewelry for gold, and silver jewelry for silver is prohibited if there is excess on either side of the exchange. Making charges and compensation for wastage must not be in the form of gold but need to be in the form of cash or Fuloos. : : " : " Abu Rafa states that Hazrat Omar Bin Khattab (RAA) once visited me. He brought silver with him and said that please make Pazaib (a chain worn around feet. I replied that I already have some readymade ones and if you wish I can exchange them with your silver. Hazrat Omar (RAA) asked that if I had jewelry of weight equal to the weight of silver he brought? I replied in affirmation. Hazrat Omar (RAA) then placed his silver on one side of weighing scale and Pazaib on the other. When the weighing scale was balanced, he took the Pazaib and handed over the silver to me. " " Abu Rafa, as per a tradition, told Hazrat Omar (RAA) that I will mold gold into jewelry and sell it with silver of equal weight, and over it I will also charge my labor. Hazrat Omar (RAA) replied, Do not sell gold for gold and silver for silver until and unless quantities (weights) are equal on both sides, and dont demand any excess. :" : : : ":

123 Abu Rafa, who was a free slave of Hazrat Muhammad (SAW), st ated that in the year when Hazrat Abu Bakr (RAA) was appointed as Khalifa, I was in need of some financial assistance so I decided to sell my wifes Pazaib. On my way to the market I encountered Hazrat Abu Bakr (RAA). On his enquiry I stated my needs. He expressed his wish to exchange the Pazaib with the silver coins he had. He then brought a weighing scale and placed the set of pazaib on one side and coins on the other. The weight of the Pazaib was found to be slightly greater than the silver coins. Hazrat Abu Bakr (RAA) ripped a piece from pazaib equivalent to the weight difference and returned it to me. I said that this should be legitimate for you. He replied You declare this legitimate but Allah doesnt, I have heard Rasool Allah (SAW) ordering to sell gold for gold and silver for silver in equal weights, anyone who gives or takes any excess will taste hellfire. : " : " Hazrat Mujahid (RAA) states that once when I was in the company of Hazrat Omar bin Abdullah Bin Omar (RAA), a gold jeweler arrived and asked Abd-ur-Rehman, I make jewelry and sell it for excess gold and charge this excess in lieu of my labor. Hazrat Abdullah Bin Omar (RAA) told him not to do so. However the jeweler kept on asking, but received the same reply until Hazrat Abdullah came to the door of the masjid or near his transport and asked him to sell dirham for dirham and dinar for dinar such that there was no excess on any side, and said T his is what has been taught to us by Rasool Allah (SAW) and I will also teach you the same. " : : "

124 Atta Bin Yasas (RAA) states that Hazrat Maviya Bin Abi Sufiyan (RAA) once sold a cup of gold or silver for gold or silver coins exceeding the weight of the cup. Hazrat Abu Darda (RAA) said to him I have heard Rasool Allah (SAW) prohibiting from such a transaction, and allowing it only if the weight on both side is equal. Hazrat Maviya argued and said that he sees no issue in such a transaction. Hazrat Abu Darda got infuriated on his reply and said I quote Hazra t Muhammad (SAW) and you prefer your own opinion I will not live with you anymore. Hazrat Abu Darda (RAA) then moved to Madinah, where he met Hazrat Omar Farooq (RAA) and explained the situation to him. Hazrat Omar (RAA) seconded his opinion and wrote a letter to Hazrat Maviya telling him not 1 to do so unless the weight is equal on both sides. All these references and traditions clearly specify Shariahs prohibition on the exchange of gold or silver jewelry with gold or silver in excess weight even if this excess is in lieu of the additional labor incurred in the making of the jewelry. Such an exchange is prohibited even today. In lieu of making charges for labor in gold or silver, craftsman can accept cash in the form of paper notes

PRACTICAL IMPLICATIONS:
The above mentioned restrictions are likely to create certain implications or cause hindrances in some capacity in modern day transactions. Some of these with alternate resolutions are discussed below. 1 Scenario: A craftsman prepares a piece of jewelry with 22 carat gold or an item with gold as the dominant material and some gems. He finds a buyer who is willing to purchase the item and pays the making charges on the spot or after a week. He also agrees to pay the equivalent of gold used in the making in the item with raw gold. This he proposes to do in a single or multiple installments starting at a later date. This sale would be prohibited or illegitimate under the reasons indicated above in Case No. 2 since the same rule would apply on any items made of materials with a dominant gold content. Because gold is on both sides of the transaction here and credit sale of gold for gold is prohibited as discussed in Case No. 1 hence this
1

st

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125 transaction would be illegitimate. The alternate solution here would be for the trader or buyer to purchase the jewelry against cash or paper notes and make the payment in single or multiple installments. A credit sale would be allowed in such a case because there is Saman-e-Khilqi on one side of the transaction and Saman Urfi or paper currency on the other. Such a transaction is not characterized as BaySurf therefore the credit on one side is legitimate. But it would still be incumbent upon the buyer to acquire immediate possession of the jewelry as failure to do so will qualify as sale of debt for debt which is prohibited. 2 Scenario: A craftsman prepares a piece of jewelry on order. The buyer placing the order pays the making charges along with equivalent amount of gold used in the making immediately upon receiving the jewelry or at a later mutually agreed time in single or multiple installments. This transaction would also be prohibited since the gold here is being exchanged for gold and this falls under the category of BaySurf. Since credit is being created here therefore the alternate solution presented for the scenario above would also be applicable here. 3 Scenario: A group of craftsmen invest their money in making jewelry some of which is of solid gold or silver while some contains real or artificial gems. This jewelry is then sold to traders and their value is assessed on account of their total weight. The craftsmen generally exchange their jewelry with pure 24 carat gold equal to the weight of the jewelry. This weight is inclusive of the weight of the gems and material wasted during the making process. The making charges, also determined by total weight, are in the form of cash which the craftsmen get along with the pure gold. In assessing the making charges, the quality of the gems used if any, the quality of workmanship, and the overall aesthetic appeal of the piece of jewelry are all taken into account. The question here is whether or not it is legitimate to exchange impure gold and gems used in the jewelry with pure gold. In attempting to answer this question, it first needs to be determined with surety that the craftsman preparing the certain piece of jewelry had not taken an order for this from any trader or buyer but had done so at his own will. In this case the making charges will be part of the price tag. For instance if the craftsman demands 50 g of pure gold along with Rs. 2,000 as the making charges, these charges will not be considered separately but will be viewed as part of the price tag. If the jewelry with a total weight of 50 g contains 30 g of 22 carat gold and
rd nd

126 20 g of gems, and the transaction is Naqd-o-Naqd or cost to cost, or the seller acquires on the spot the pure gold equivalenet to the weight of the impure gold used in the making of the jewelry, then this transaction would be legitimate. This is because the 30 g out of the 22 carat gold will be exchanged for 30 g of pure gold while the remaining 20 g of pure gold, which can also be paid at a later time, will be in lieu of the gems used in the jewelry and Rs. 2,000 will be the making charges. In case the piece of jewelry in question is simply gold without gems, then this transaction would be deemed usurious because 50 g of impure gold in the jewelry will be exchanged for 50 g of pure gold and the remaining amount of Rs. 2,000 will constitute Riba as it will not be in lieu of anything. Here the alternate solution suggested in the first scenario should be applied in order to avoid complication.

TRADING JEWELRY WITH CRYSTALS WITH GOLD OR SILVER

There is a certain type of jewelry in which crushed pieces of glass are used to create different designs on the jewelry. This can also be exchanged with pure gold against the total weight of the jewelry inclusive of the weight of the crushed glass. This trade would be legitimate only if the items are exchanged on the spot and there is no credit among the trading parties. The buyer must give gold in an amount equal to the amount of gold in the jewelry, which could be impure such as 22 carat.

SOME CRITICAL ISSUES

1. It is permissible to exchange jewelry made with 20 g of gold and a utensil made with 10 g of silver with a bar of 10 g of gold and a utensil of 50 g of silver only if the 20 g of gold is put against 50 of g silver and 10 g of silver is put against 10 g of gold. It is assumed here that the utensils are exchanged for bars or jewelry. However if it is specifically declared that jewelry of 20 g of gold is being put against a bar of 10 g of gold and a bar of 10 g of silver is put against a utensil of 50 g of of silver, then this would constitute a clear 1 case of Riba.

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2.

3.

127 The following conditions must be kept in mind if for instance a gold ring is being exchanged with another gold ring: a) The sale is legitimate if both rings contain diamonds or any other gems even if their weights differ. However both parties need to acquire possession on the spot. b) If both rings are plain and without any gems, then their weight has to be identical. Any difference in weight will fall within the boundaries of Riba. c) If one ring has a gem and the other does not, then the weight of the plain ring has to be greater otherwise the transaction will be usurious and illegitimate. Both parties also have to acquire possession on the spot. It is not permissible to promise to deliver or take possession of items at a later time. If a shirt or shawl with silver embroidery is exchanged with 20 g of silver and if the silver wire used in the embroidery on the shawl is 10 g in weight, then the buyer has to pay 10 g of silver on the spot. The remaining 10 g may be 1 paid at a later time if both parties mutually consent to do so.

SOME ALTERNATES OF OBJECTIONABLE TRANSACTIONS

1. For exchanging impure or contaminated silver with pure silver, it is recommended that the impure silver be first sold against cash, which in turn should be used to purchase pure silver. Here it is important to take 2 the cash in possession before it is used to purchase the pure silver. If gems or decorative glass are embedded in the jewelry, or a utensil made of another metal is plated with silver, or when silver, gems or glass are bonded in such a way that they cannot be separated without damaging the assembly of the item, then the buyer has to present silver in an amount greater than is used in the item being purchased. If this amount is less, then the difference would be considered Riba. If the amount is equal then it means that the buyer is getting gems or glass without any payment and this would constitute as Riba as well. In order to avoid Riba, the buyer can offer the remaining amount in cash. For

2.

1 2

-------------------------------------------- ) ( ( ) Ibid

3.

128 instance if the silver in the subject matter is 50 g and the buyer has 45 g 1 then the difference in cash can be paid to the seller. For someone who wants to purchase a gold utensil on credit it is recommended that the buyer first take a loan in the form of gold coins or bars equal to the amount used in the making of the utensil and later return the gold to the lender. The seller can also play the role of the lender. However the loan contract should be separate and independent 2 from the sale contract.

SALE AND PURCHASE OF GOLD MIXED SAND

Gold and silver mixed sand is often purchased to extract the gold and silver from it. There are certain important issues related to this trade. 1. 2. 3. This sand can be traded against cash. The sale of silver mixed sand with gold or gold mixed sand with silver is legitimate if both parties take possession on the spot. Sale of silver mixed sand with silver or gold mixed sand with gold is allowed only if the amount of silver in the sand is equal to the amount of pure silver used for payment. Same is the case with gold mixed sand. Any difference here will constitute Riba. The sand here will is considered valueless and the gold will be traded against gold and the silver will be traded against silver.

EXCHANGE OF OLD JEWELRY WITH NEW

When trading old jewelry for new, it is customary to determine the value of the old jewelry separately and then pay the difference in the value of the old and new jewelry with cash. If the jewelry in hand is 60 g and was purchased for Rs. 15,000 and the new jewelry of 40 g is estimated to be the same price, then it is often considered appropriate to barter the old jewelry with the new. This form of exchange is totally prohibited. The correct manner for such an exchange is to sell the old jewelry to the trader and then use that cash to purchase the new jewelry. The exchange of jewelry for jewelry must abide by the following rules: 1. If the jewelry in hand contains only gold which is of lesser weight than the weight of the new jewelry, then the shopkeeper has the right to ask for

1 2

Ibid Ibid

2.

3.

129 another piece of jewelry, such as a pair of gold earrings, to cover the difference in price at the time of the exchange. The buyer can also pay cash equal to cover this difference in weight. If the jewelry on both sides of the exchange has gems or pearls, then any difference in the weight of gold on either side will be allowed as this additional weight will be adjusted against the cost of gems on the other side. If plain jewelry is being exchanged for jewelry with gems, the shopkeeper has the right to demand additional payments under either of the following conditions: a) If the customer wishes to exchange his plain jewelry with one with gems, the shopkeeper can ask for additional payment if the weight of the new jewelry is greater than the one in hand. b) If the jewelry in hand contains gems and the new jewelry is plain then the shopkeeper can ask for additional payment only if new jewelry is greater in weight. If the value of the pieces is equal or more, then the shopkeeper cannot charge anything extra.

ADVANCE CONTRACT WITH SPOT PAYMENT

Trading parties often bind themselves in a legal sale contract stating that they will exchange gold with cash at a later time at the current market rate of gold valid at the time of exchange. This contract will be prohibited under the laws of Shariah as this constitutes sale of debt for debt whereby both parties have declared themselves liable to pay a certain amount of cash or gold at a future date. The transaction will only be permissible if both parties do not bind themselves by contract but promise to make this exchange at a future date. In this case the rate of exchange can be mutually agreed upon by the parties earlier or at the time of exchange. There is another slightly different form of sale transaction commonly carried out nowadays in which the shopkeeper demands an additional amount or gives a discount to the seller for buying gold at a later time with the payment due on delivery. If the buyer terminates the contract before culmination, he is required to pay the damages or cancellation charges to the seller. Such contracts are invalid as per Shariah since they are verbal and are usually done in the absence of witnesses. Furthermore any amount demanded as contract cancellation charges qualify as Riba.

130

THE ISSUES OF MATERIAL USED IN WELDING

In the craft of jewelry making a metal with a melting point less than that of gold or silver is used to weld together different pieces of jewelry. For instance, cadmium is a metal mixed with gold for welding purposes. This further increases the level of impurity in the gold which cannot be separated by ordinary means. When such jewelry is exchanged with pure gold equivalent to its weight, it is sometimes assumed that the pure gold will compensate for the wastage caused in the making and welding process. Often at the time of exchange the craftsman also charges additional gold along with the pure gold to compensate for the wastage occurred in the jewelry making. During such exchanges the making charges are also charged by the maker in addition to the pure gold taken by him. These making charges should be in the form of cash. If they are taken as gold, then this will qualify as Riba, as this would be in addition to the pure gold he has already charged for the wastage. Furthermore any welding on the jewelry needs to be done only where necessary lest it increases the impurity of the jewelry. Any intentionally and unnecessarily welding is prohibited and illegitimate in the light of Shariah.

WASTAGE
It is inadvertent to lose some quantity of gold during the process of jewelry making. This wastage is in the form of very small particles most of which are impossible to collect. Gold markets have fixed standards to compensate for these losses. For instance craftsmen using 10 gms of gold in jewelry making will receive 0.5 g on top of the cost. Similarly on 20 g of gold, the fixed compensation is an additional 1 g on top of the cost. It is of course not necessary that the actual wastage is exactly equal to the established norm; it could be more or less than the standard rate of compensation. Though the near impossiblily of keeping track of the exact amount of wastage makes the jewelry maker susceptible to loss or profit, the standard rate of wastage compensation remains fixed. The Shariah rulings for this compensation are analyzed below: Case No. 1: A craftsman who makes jewelry with his own gold can exchange it with either cash or gold. If he is exchanging with cash, he needs to get a lump sum from the buyer which includes compensation and making charges as well. For instance both the buyer and seller may mutually agree that the price of a bracelet of 30 g and 22 carat is Rs. 87,000 (22 carat, 10 g gold being worth Rs.

131 24,000 at the time of this book translation). This price includes the making charges of Rs. 2,000 per 10 g and wastage compensation of Rs. 1,000 per 10 g as per market standard. Case No. 2: If the craftsman wishes to exchange this piece of jewelry with pure gold, then the weight has to be the same on both sides and the items have to be exchanged on the spot. The maker cannot demand any excess gold as making charges or as wastage compensation. Case No. 3: If the piece of jewelry contains gems, then the craftsman can exchange it with gold in excess of the amount used in the making of the jewelry. However both parties need to exchange the items on the spot. Cast No. 4: If the craftsman has crafted the jewelry with gold provided to him by the buyer, then the wastage will not be deducted from the making charges. This is because wastage tends to vary and is hard to measure precisely. Therefore it is recommended that the buyer forego the amount of gold assumed to be wasted during the process of jewelry making. This is also to eliminate any possibility of deducting more wastage than actually occurred. Case No. 5: Often craftsmen do not use the gold provided by the buyer but use their own gold equivalent to the amount provided by the buyer. The norm is to assume that the buyer has loaned the craftsman a certain amount of gold and which he returns in the form of jewelry. In this case as well the buyer has to forego the wastage possibly caused in the making process for reasons listed in the previous case. Case No. 6: The buyer is the shopkeeper himself who sells this jewelry in the market. At the time of sale, he gives receipts to his customers detailing the making charges and compensation of wastage. These amounts are often deliberately exaggerated to augment profits. This is prohibited under the rulings of Shariah. The legitimate way of making the same amount of profit is to declare the compensation of wastage correctly and increase the making charges. This manner of making a profit is deemed permissible while the former method is prohibited.

132

SOME CONTEMPORARY MODES OF TRADING GOLD AND SILVER

There are a number of firms operating in the market today which are characterized as Forex or Comex trading companies. An analysis of their method of business reveals that they are illegitimate. For instance any individual can become a member of these companies for say $10,000. These members are then guided by the company on how and when to engage in the trading of foreign currencies and commodities in a manner which ensures profitability on a continuous basis. Each currency or commodity being traded has a minimum limit of purchase termed as lot which could be worth 62,500 or DM 125,000. These commodities could be gold, silver, wheat, sugar, cotton or rice. A lot of gold consists of 100 oz while a silver lot is usually 5,000 oz. When a member shows inclination to purchase a lot, a company agent books his order in lieu of token money or a security deposit such as $2,000 which is taken from his membership fee. The order is then sent to the company head office and the member is provided a confirmation by the respective agent. This trading is of two types: 1. 2. Cash Trading or Spot Trading: In this type of trading, the ownership of the lot is immediately transferred to the member. Future Trading: In case of future trading, the company promises to deliver the lot on a future date at a price fixed at the time of contract.

THE ROLE OF THE COMPANY IN THIS T RADING:

This role has been defined by the company Empire Resources: The objectives for which the company is established are as follows: To install equipment, operate and provide facilities of communication through monitors and apparatuses link up to as a commission house between the clients and brokerage house in various finance trading centers of the world. As per this definition, the company acts as a commission agent between its clients and the various brokerage houses around the world. The company charges about $50 on every contract which is irrespective of the profit or loss incurred to the client. The company charges its commission only if the lot is sold on the day of its purchase. In case of a delay, an amount of $5 is charged per day

133 in addition to the commission. Often the client also gets this interest. According to Empire Resources: Interest/premium are paid off, charge based on the number of days for a position trade.

SPOT T RADING
The company facilitates contracts between clients and brokerage houses and charges commission on each contract. The client is not required to make full payment in such a contract. Such contracts for gold and silver are deemed illegitimate for the following reasons: 1. This becomes a sale of debt for debt as the seller and buyer both become indebted to each other unless either full payment is made or the ownership of the commodity being traded is acquired. As stated in Addr Al-Mukhtar: :" " In a sale of Fuloos for Fuloos or Fuloos for Dirham or Dinar, if either party makes the payment then the contract is legitimate. However it would be illegitimate if both parties leave the scene without paying 1 anything to each other. According to Allama Shami (RA), "" This is sale of debt for debt, therefore it is erroneous. 2.
2

The client has to pay interest for each day that the payment is deferred, which is illegitimate. Contrary to this, if the company itself purchases the lot, then the following possibilities could arise: a) If a company makes the purchase on its own and then sells it to a client, it would still cause the above listed problems. Furthermore this

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134 situation would void justifications for any commission charged by the company. b) If the company makes a purchase on behalf of the client and acquires the ownership of the lot by paying in full, then this would be sale of debt for debt and hence prohibited. The company would also still charge interest from the client on any deferred payments.

FUTURE TRADING
Though future trading may seem like BaySalam, in reality it is not because certain prerequisites necessary for BaySalam are absent here such as the fact that a client can make a deal without making full payment. For BaySalam it is also necessary that the purchased commodity not be sold unless its ownership or at least the constructive ownership, is acquired. But in the nature of business under discussion, the subject matter is sold to the other party before the acquisition of ownership. It is stated in Addr Al-Mukhtar: "" In sale transactions (credit sale or future sale) is it not allowed for the buyer or seller to further sale or purchase the commodity or money the 1 ownership of which is yet to be acquired. In context, it needs to be mentioned here that BaySalam is prohibited in cases of gold and silver since it cannot be done with Saman-e-Khilqi. It is however allowed for other commodities or currencies as confirmed by the following statement found in Bada: " " As far as the matter of Bay Salam of Fuloos is concerned, it is allowed when traded quantitatively as per Hazrat Imam Abu Hanifa and Abu Yousuf (RA) but not allowed as per Imam Muhammad (RA).This is so because Fuloos are

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135 Asman, therefore Bay Salam will not be allowed with them. Similarly Bay 1 Salam is also not allowed with dirhams and dinars. Future contracts are a firms commitment to make or accept delivery of a specified quantity and quality of a commodity at a specific date in future at a price decided at the time when the commitments were made. The unique attraction of future contracts is that they offer an efficient and affordable way of participating in the commodity markets without all the complications associated with acquiring ownership of physical material, such as transportation, storage and insurance. Less than three percent of all future contracts traded each year result in the delivery of the underlying commodity. Instead, traders generally offset their future positions before their contract mature realizing the profit or loss which is the difference between the initial purchase or sale price and the price of the offsetting transaction.

ANOTHER MANNER OF COMMODITY EXCHANGE

Another modern day common method of gold trading is where the buyer purchases a certain amount of gold without taking physical possession of it. After a few days or weeks when there is a change in the price of gold, the buyer sells this gold back to the trader and receives the difference of value. For instance Omar purchases 10 g of gold from Zaid on credit and now owes Zaid Rs. 26,000. Both parties also mutually agree that Zaid will retain possession of the gold since payment has not yet been made. After a week Omar asks Zaid to purchase back the gold whose value has now appreciated by Rs.100 per g. If Zaid agrees, he will have to pay Rs. 1,000 to Omar as the new difference in price. In other words, Zaid adjusted Rs. 26,000 against the debt that Omar had taken a week ago and pays him Rs.1,000 due to the increase in the price of gold. If in case the value of the gold in question depreciates by Rs. 1,000 or Rs. 100 per g, then Omar will be required to pay this difference if Zaid demands. In such a transaction, neither the money nor the subject matter has exchanged hands. Instead, only debt has been exchanged for debt and this is clearly prohibited by Shariah as already discussed.1

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136

CHAPTER-6: EXCHANGE OF CURRENCY OR FULOOS

BAYSURF AND FULOOS
As established in the chapter four, the scholars of Hanafi, Shafii, and Hanbali Schools all assume the presence of Saman-e-Khalqi on both sides of any transaction as a mandatory requirement for any exchange to qualify as BaySurf. This view is endorsed by Allama Haskafi (RA), Allama Marghinani (RA), Allama Nasfi (RA), Allama Ibn-e-Najeem, Allama Ibn-e-Taymiyya, and Allama Zaheli. The popular books of the Hanbali school of thought, Kashaf Al-Kana, Fiqh Shafia, Maghni Al-Mahtaj, and Tatoor Al-Naqood further affirm this point. Hence for BaySurf, the medium of exchange has to be Saman-e-Khilqi or gold or silver. In case of impurity, the content of gold or silver must be more than the content of the metallic alloy. Fuloos does not qualify for BaySurf even if it is in common usage or contains some fraction of gold or silver. The statement of Kanz AlDaqaiq elaborates this point further: " " "If purity (of gold or silver content) is doubtful, then it will not be dealt with rules related with dirham and dinar, i.e. an increase or excess will be allowed during exchange. As per tradition, it would be correct to trade them according to quantities or weight and since they are Asman

Most of the issues on trading of gold and silver discussed in this chapter has been taken from a journal Islamic Rulings on Gold, Silver and their Jewelry by Dr. Mufti Abdul Wahid, Darul-Iftah, Jamia-e-Madinah, Kareem Park, Ravi Road Lahore, Pakistan.

137 therefore their value will be based on judgment (of the trading parties) .
1

A benefit of not referring to these transactions as Surf is that this creates a margin of profit in the exchange of items of different nature such as wheat for bread and allows for Khiyar-e-Shart and deferred payment. Additionally this allows for the acquisition of item being exchanged by at least one party in order to avoid sale of debt for debt or . This is confirmed by the following statement from Ftah Al-Taqdeer: " " It would not be legitimate to trade an unidentified Fals with two unidentified Fuloos, as Fuloos are equal units, and because the people agreed to ignore the value of its purity, (If such a trade occurs) then a 2 Fals will be in excess on one side, which is Riba.. This confirms that if a Fals of identified value is traded with a Fals of similar nature then any excess will undoubtedly qualify as Riba since the value of Fals is standardized in societies. This exchange would be deemed Riba and is prohibited. It needs to mentioned here that Riba and BaySurf are mutually exclusive. Therefore it is possible that a form of exchange which does not qualify as BaySurf could still be considered usurious. For instance, any excess in the exchange of wheat for wheat will be Riba. But at the same time this exchange does not qualify as Surf. Similarly in the exchange of one Fals with 2 Fuloos, the additional Fals would be Riba and would hence be prohibited. Hanafi and Maliki scholars mutually agree on this point. There are certain scholars who do not concur with this view and consider it legitimate to exchange Fals or Fuloos with excess Fuloos of similar nature if the trading parties judge the value of the Fals to be different than what is established in society. For instance, contrary to the accepted value of 1 dinar to be equivalent to100 Fuloos, Zaid and Omar mutually agree that the Fuloos owned by
1

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138 Omar are valued at 80 per dinar. They also agree that the Fuloos owned by Zaid are worth 120 per dinar. In this case it is permissible for Zaid to trade Omars 80 Fuloos with his 120. However, such a transaction is still deemed prohibited in the opinion of Imam Muhammad (RA) since he believes that no individual has the right to tamper with the value of currency other than what is established as the norm in society. According to Alllama Kasani: " " "Items other then eatables, which are among same countable units, as per Imam Abu-Hanifa and Imam Yousuf, are also allowed to be sold with the same item with excess, but only in case of spot-exchange. For example, one coin can be sold with two coins, if they are of same denomination. But this is not allowed by Imam Muhammad (RA). Imam Muhammad (RA), holds this opinion because according to him Fuloos are Saman. Therefore they are just like gold and silver and their sale with excess, as described, is not allowed. Their Samaniat is proven because they are used to measure the value of items, just like with dirhams and dinars. Fuloos also serve the same purpose, therefore Fuloos can be assumed to be Saman. For the same reason if Fuloos are compared with items of different nature or of same nature in equal proportions, then they can again be considered Saman. If so, then their value is not based on the judgment of trading parties, like it is the case with gold or silver (coins). Therefore the Saman may not be identified, and if so like Dirham and Dinar, the identification there in would be ignored. Consequently this makes the exchange of Fuloos for Fuloos impermissible; because the both are not identified, particularly when

139 they qualify as Saman. This will render into the sale of Fuloos for more 1 Fuloos, which is an obvious case of Riba..." According to the book Hidaya: : " 2 " Ftah Al-Taqdeer discusses four forms of exchanging Fals with Fuloos, three of which are indisputably illegitimate while there is a difference of opinion regarding the fourth. Subjected Matter:
Fals of identified value Fals of judged value Fals of identified value Fals of judged value

Exchanged with:
Fuloos of identified value

Status in Shariah:

Fuloos of identified value Fuloos of judged value

Undisputedly Prohibited and Illegitimate

Fuloos of judged value

Difference of Opinion among 3 Scholars.

Allama Sarkhasi (RA) states: " " When a person purchases Fuloos for dirham on credit, promising to pay later, then this would be legitimate because Fuloos if identified value are

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140 also an accepted form of cash. We have already stated that the rules of contract of Saman are based on their obligation and existence, and it is necessary for the well being of the transaction that the Saman be in possession of the purchaser at the time of transaction. However this is not true in case of dirhams and dinars (if they are on both sides of 1 exchange). Allama Sarkhasi further states: "" Exchange of Fuloos with dirham is not Bay Surf.
2

This indicates that when Fuloos is just on one side, the exchange would not be considered BaySurf. Similarly an exchange where Fuloos are on both sides would not qualify as Surf either. Three of the four imams agree on this point. The opinion of the scholars of the Maliki School is as follows: : : " : : : : : " "I asked: Can I purchase dirham for Fuloos and acquire the psychical ownership at a later time? He said that this is impermissible by the verdict of Imam Malik and it is fraudulent. Imam Malik has also told me that credit sale of gold or silver with Fuloos is not good and even if people start using hides (animal skin) abundantly as a medium of exchange or Fuloos, I will still declare their credit sale with gold and silver as disliked (). I asked: If I purchase a gold ring with Fuloos and delay the possession to another time, then is it permissible for Imam Malik ? He said As per Imam Malik it is not permissible to trade Fuloos with more Fuloos...
1 2

------------- ----------------- )( ( ) Ibid (24,14)

141 In a tradition, Lais Bin Saad Yahya Bin Saeed and Rabia have cited the dealings of Fuloos for Fuloos as reprehensible when there is an increase on one side or if there is credit, and said that Fuloos are now like coins of 1 dirham and dinar (in usage)." : : " " : and Imam Malik has narrated: I consider it reprehensible when it is in Fuloos and I dont consider this matter illegitimate like it is for dirhams and dinars. I asked that is it illegitimate to sale a Fals for two Fals? He 2 said that sale of a Fals for two Fals is not illegitimate. :" : : " "All of our mentors discourage sale of Fuloos with Gold and Silver, unless 3 the transaction is on the spot." These statements of the Maliki scholars affirm their opinion that the presence of Saman-e-Khalqi is not mandatory for BaySurf; the exchange of Fuloos for Fuloos or Fuloos for Fals also qualifies as Surf and their credit sale is not permissible.

DOES EXCHANGE OF CURRENCY NOTES QUALIFY AS BAYSURF?

The four established view points on the status of paper notes have already been discussed in chapter four. These include: 1. 2. 3. 4. Paper notes as a certificate of debt. Paper notes as they come under the category of goods. Paper notes as a substitute for gold or silver. Paper notes as Saman-e-Urfi since they fall in the category of Fuloos.

-------- ( ) ( 2 Ibid 3 Ibid (6,5/3)

142

1 GROUP OF SCHOLARS
The first group of scholars hold the view that paper notes are a certificate of debt and do not qualify as BaySurf. This is because possession of Saman-e-Khilqi is mandatory for both parties and these scholars see paper notes only as certificates of debt. Since the first viewpoint assumes that the possession of paper notes does not constitute the possession of Saman-e-Khilqi but are only certificates with no intrinsic value of their own, therefore these scholars reject the concept of BaySurf as applicable on paper notes. As stated in Imdad Al-Fatwee: "Can a person exchange Rs. 100 with another person with an amount lesser or greater then Rs. 100?" Answer: Transaction with paper notes is not sale, but Hawala. Therefore any excess on either side will be considered Riba hence prohibited and 1 illegitimate for obvious reasons. Another scholar answers the question as follows: "The nature of note is that of Hawala, therefore any increase or decrease 2 in Hawala is Riba, whether conditional or understood." According to Fatawee Dar-ul-Uloom Deoband Maroof Ba-Aziz Al-Fatawe: Bay (of Paper Notes) with a value greater or lesser than what is stated on it is not correct. It cannot qualify for Bay Surf but falls under the 3 category of Hawala. It is further stated in Fatawee Rasheedia: Question: Is the sale or purchase of paper notes with lesser or greater quantity allowed or not?

ST

1 2

-------------- ---------------- ) ( ( ) Ibid (78/3) 3 -------------- ----------------- ) (

143 Answer: Sale or purchase of paper notes is not correct even if the quantities are equal. However it can be done in context of Hawala, which will be allowed or legitimate. Any increase or decrease on either side will 1 be Riba hence prohibited. Since these scholars consider paper notes to be certificates of debt, therefore they do not consider their direct sale or purchase to be legitimate regardless of quantity. If there is an intention to trade paper notes with paper notes, then this transaction needs to be conducted as a Hawala and would be legitimate only if the quantities are equal on both sides of the transaction.

2ND GROUP OF SCHOLARS

The second group of scholars believes that the rulings of Urooz and goods apply to paper notes. This consequently disqualifies paper notes as BaySurf. According to these scholars, Surf requires money or cash in the form of Saman-e-Khilqi which should be in possession of the parties involved in the transaction. These scholars only consider gold or silver as Surf. Allama Ram Pur and Ahmed Raza Barelvi, scholars of Indian origin, state in one of their journals: : " ( ) -" Question: Is it legitimate to sell or purchase paper notes with a lesser or greater value written on them? In my opinion this is legitimate as per the mutual agreement of trading parties. All scholars belonging to our School of Thought confirm this. For Riba Illah is the weight, length (depending on the object) and its intrinsic nature (material content etc). If these Illah are present in paper notes then any increase or Nasa is prohibited. If absent then the transaction (with an excess) will be allowed. If any one of the conditions is present then increase is allowed but Nasa will be prohibited. These conditions must not be compromised, as all issues of

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144 Riba are based on these conditions. It is very clear that the material content of dirham and dinar are very different; notes are made of paper, and dirhams are made of silver. Paper notes are neither weighable nor measurable, therefore excess and Nasa is allowed without any objection. Henceforth paper notes are not among those items upon which the 1 rulings of Riba are applied. According to an answer stated in Fatawee Rizvia: As per the established standards, Fadl and Nasa should both be 2 considered legitimate in case of paper note. It is mentioned in Fatawee-e-Sadia: " " It has been confirmed that paper note is an asset, therefore it can be exchanged for lesser or greater value of notes, irrespective of their origin (dollars for Riyals) or denomination. According to a Fatwa by Sheikh Salman Al-Hamdan: " " Riba has nothing to do with the exchange of notes because they are not among those items for which Riba is prohibited. Riba is particularly associated with items which are weighable or measurable, whereas 3 paper notes ares neither of the two.

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2

145

3 GROUP OF SCHOLARS
The third group of scholars believes that paper notes are a substitute for gold and silver and hence they apply the rules of gold and silver to them, qualifying the sale and purchase of paper notes as BaySurf. Moulana Abdul Hai Lakhnavi concurs with this viewpoint. Though he considers paper notes to be Saman, the rules related to gold and silver are applied to them instead of the rules related to Fuloos. In his words: Fuloos are artificial money and not Saman-e-Khilqi. Contrary to this Paper Notes are not considered Saman-e-Khilqi even thought their Samaniat is not natural but fabricated. Though sale with an excess is permissible for Fuloos, it is not allowed for paper notes because Fuloos are unnatural Saman in both reality and theory. However, they are erroneously labeled and viewed in a manner which ascribes Samaniat to them. Hence paper notes are treated as having natural Saman in all rulings. In the chapter related to Tafadul ( or excess), these rulings will be developed in the same context and excess ( )will be declared 1 as illegitimate. Sheikh Abdul Razzak Afifi also concurs with the above statement: " 2 " All these views affirm the opinion of the third group of scholars that since paper notes are seen to be a substitute for these metals the rules of gold and silver will apply to them. Consequently, Riba Al-Fadl and Riba An-Nasiyah will also apply to any transaction involving paper notes in case of an increase of amount on either side. Hence as per these scholars, the exchange of paper notes qualifies for BaySurf.

RD

1 2

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146

4 GROUP OF SCHOLARS
The fourth group of scholars views currency notes as a form of money and hence treat them as Fuloos as per the rules of Shariah. Therefore their exchange does not qualify as BaySurf. To surmise, there is only one group of scholars who views the exchange of paper notes to be BaySurf. All four groups present their reasons for rejecting or accepting the theory: 1. The first group rejects paper notes as Surf due to their belief that these are certificates of debt. Their exchange is hence rejected as Surf but accepted as Hawala. The second group disqualifies paper notes as Surf since they consider these to be goods. According to the third group, paper notes are substitutes for gold and silver hence allowing for the rulings of gold and silver to apply to these as well. This is the only group of scholars which accepts the use of paper notes under BaySurf. Though the scholars in the fourth group considers paper notes to be money, they believe that money has to be Saman-e-Khilqi in order to qualify as BaySurf. Because paper notes are not Saman-e-Khilqi, they are therefore disqualified from Surf.

TH

2. 3.

4.

Mufti Taqi Usmani concurs with the view of the fourth group of scholars: " Excess is not allowed in the exchange of paper notes neither is their exchange considered Surf. This is because paper notes are not Saman-e-Khilqi but qualify as Saman-e-Urfi or are terminologically categorized as Saman. Gold and silver are 1 Saman-e-Khilqi and are exclusively qualified for BaySurf. Syed Muhammad Baqar states the following regarding the exchange of currencies:
1

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147 " " Their sale and purchase is allowed as per Shariah, irrespective of 1 whether the transaction is based on credit or occurs on the spot. This statement indicates that the credit sale of paper notes is allowed and that this sale will not be considered as Surf. Sheikh Abdullah bin Salman, a member of Dar ul Afta, Riyadh writes: " ") ( According to this concept, paper notes are similar to Fuloos due to their Samaniat. Therefore all rulings related to Riba, Zakat, and forward sale in transactions conducted with Fuloos will similarly be applied to paper notes. A large number of reputable scholars concur with this view. There are two subgroups within this group; (a) those who believe that paper notes are similar to arz (singular of urooz) and (b) those who consider them to be certificates of debt. (This point is view is hence balanced between these two extremes) and in my opinion this viewpoint is 2 relatively more appropriate and justified. According to Sheikh Ahmed Khateeb: " " ( ) All explanations clarify that paper notes, both in their endogenous and 3 exogenous characteristics, are similar to Fuloos made of copper. In chapter three, the fourth opinion was preferred and hence will also be preferred in context of BaySurf. Therefore the exchange of paper notes will not be considered within the scope of BaySurf. A detailed analysis on the exchange
1 2

------------------ ) ( ---------------------------------------------------------------------------------------------- 3 Ibid

148 of Fuloos has already been done at the beginning of chapter four and hence will not be repeated here.

CURRENCY EXCHANGE OR TRADE

It is necessary to discuss the exchange of currencies in the light of Shariah rulings. It has been established already that currency notes qualify as Fuloos. Not only does the currency of different regions differs intrinsically, but there are also differences in opinion regarding the trading of these Fuloos. Imam Muhammad (RA) and Imam Malik (RA) declare any excess accrued in the exchange of Fuloos by either one of the trading party as illegitimate. Hazrat Sheikhain (RA) concurs with this opinion only if the value of Fuloos is not dependent upon the judgment of the trading parties. In view of this viewpoint, the exchange of currency notes with any excess would also be prohibited and illegitimate. The basis of this opinion is the Illah that if the items or subject matter is of similar nature on both sides of the exchange then any excess will qualify as Riba. Riba is prohibited and illegitimate and various references from different Arabic journals and books have already been quoted attesting to this prohibition.

A CONTEMPORARY AND ERRONEOUS VERDICT ON CURRENCY NOTES

According to the research of Mufti Rasheed Ahmad Ludhyanvi (RA), a one rupee coin is Fuloos and paper notes of larger denominations, such as a ten rupee note, are certificates or receipts of these metallic coins. After his correspondence with the State Bank of Pakistan, Mufti Ludhyanvi learned that coins and one rupee notes are equal to the quantum of national output (or GDP). Based on the quantity of these coins and one rupee notes, notes of larger denominations are produced as representative certificates for the coins and rupee notes. His discussion with the State Bank led to the following conclusions: 1. 2. 3. Metallic coins are Fuloos. One rupee note will be dealt with the rules of Fuloos. Notes of larger denominations are certificates of the first two.

In the light of these conclusions, a ten rupee note is not money itself but is a certificate of the coins and rupee note. Mufti Ludhyanvi makes the following comment on the exchange of currencies:

149 Rules of Fuloos will be applied on a rupee note therefore its exchange with another rupee note is allowed, but excess or Nasa is illegitimate. If there is a need for Nasa, then instead of exchange, Istaqraz mode (: To ask for a loan) can be adopted. Therefore exchange of notes of bigger denomination with a rupee note can be done in context of Istaqraz. Exchange of larger notes is not an exchange of goods for goods, rather it is an exchange of certificate withf certificates therefore 1 allowed. This statement highlights the following four modes of exchange: 1. Exchange of one rupee notes with rupee notes is allowed. However there should be no excess on either side and the transaction has to be done on the spot. BayNasa is not allowed with one rupee notes. This can be done if one party loans an amount to the other party such as Rs. 100 notes which are later returned by the debtor. Spot exchange of single Rs. 100 note with a hundred Rs. 1 notes is not allowed. This transaction would be possible if a party lends one Rs. 100 note to the other and receives 100 Rs. 1 notes in lieu of the debt. Exchange of a Rs. 100 note is allowed with another note of Rs. 100.

2.

3.

4.

The gentlemans opinion that all rupee notes and coins are represented in totality by notes of larger denominations is incorrect since it has been observed hat the amount of larger denomination notes are not dependent on the quantum of coins or rupee notes nor are they represented by larger notes. This renders the foundation of this viewpoint faulty. Also in chapter three, the fourth viewpoint on paper notes was preferred which further weakens the above stated point of view. Even if this viewpoint is taken to be correct for the sake of argument, the fourth mode of exchange stated above will be voided since the sale of debt for debt is prohibited. The gentleman first declares currency notes of larger denominations as a certificate of debt and then allows its exchange with a similar note which clearly violates the stated principle. The preferred mode here would have been Hawala. In the light of evidence presented, the viewpoint is of little use.
1

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150

THE ISSUE OF POSSESSION IN CURRENCY EXCHANGE

As already discussed earlier, the exchange of Fuloos or currency does not qualify as BaySurf. Theoretically this makes it unnecessary for both parties to ensure possession of the currency at the time of the exchange. There is also no compulsion for the transaction to be completed on the spot. The reason for this is that possession and on the spot nature of transaction is a condition for Surf but not for an ordinary Bay. Contrary to this, possession and spot exchange is considered mandatory for the exchange of currency. Mufti Taqi Usmani had previously held the opinion that possession by both parties and spot exchange is not necessary in the exchange of currency and that transactions can be made with only party in possession of the currency. However, he later changed his opinion after analyzing a paper written by Mufti Muhammad Shafi Ludhyanvi and now states that both parties must possess the currency they intend to exchange on the spot. According to Mufti Rasheed Ahmed: Here there is no disagreement that possession at the time of exchange is mandatory. However in the School of Thought of Sheikhain, there is another opinion that if value of subject matter is judged by the parties then possession is not mandatory whereby among the two conditions i.e. 'possession' and 'judgment of value', any one should be present." : : ) ( : ) ( On the subject under discussion, according to explanations given by Imams belonging to all schools of thought, if the value of the item on any side is judged by the trading parties in items of similar nature, then this will qualify as Nasa hence illegitimate. There is no justification found for

151 excess on one side and Nasa and the fact is that such a mode of 1 exchange is against the rules stated by jurisprudence. Justice Mufti Taqi Usmani states in this regards: The discussion done by Hazrat Moulana Mufti Rasheed Ahmed Madluham in his work Ahsan Al-Fatawee, Volume 87-7, can be summarized as follows: For the sake of authentication of such a contract, possession acquired by any one of the trading parties is not sufficient, rather both parties must acquire spot possession of the subject matter. After analyzing the rationale given by Hazrat Madluham, the author (Mufti Taqi Usmani) also agrees with the gentleman. In situations where Fuloos are exchanged with Fuloos of similar nature ( ), there is a disagreement among the jurisprudents of Hanafi School of thought. The rule which I stated earlier was rather based on the research done in Tanveer Al-Absar, Al-Dar Al-Mukhtar, and by Allama Shami; and in the journal Bada Al-Sanaa Hazrat Mufti Madluham has quoted the statement of Allama Kasani (already stated before). It can be extracted from this statement that possession by both trading parties is compulsory whether the transaction is Bay Surf or not This is because the nature of items is similar on both sides therefore Nasiyah is not allowed. However the scholars who consider possession only on one side necessary have probably not considered only the delay in possession without the identification of deferment as Nasiyah. Allama Ibn-eHamaam (RA), in his book Fatah Al-Taqdeer volume 2885, has refused to consider this as Nasiyah due to the same reason. Allama Shami (RA) has taken it from the School of Thought of Imam Muhammad (RA), and if it is correct, then it cannot be nullified as per se. The statement of Allama Kasani however subjugates it. This makes two conditions to avoid Nasiyah; (1) both parties must exchange currency, Fuloos etc before concluding their meeting or (2) if the payment is required to be deferred then the value of subject matter must be judged
1

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152 by the trading parties. Since it is a established verdict that the value of Fuloos cannot be judged, therefore possession for both parties becomes compulsory. As this justification is very concrete, therefore the author (Mufti Taqi Usmani) announces cancellation of his Fatwa of .
1

Here it is important to note that the statements by Mufti Rasheed Ahmed and Justice Mufti Taqi Usmani are related to the possession of Fuloos at the time of exchange. Both gentlemen also consider paper currency as Fuloos hence rendering the rulings related to Fuloos applicable on paper currency as well. This establishes that for currency exchange transactions to be Shariah compliant, both parties must possess currency notes and must exchange these currencies before they leave the venue of the meeting.

EXCHANGE OF CURRENCY NOTES AS CREDIT

Although exchanging currencies in excess and Nasa are not allowed, there are certain instances in which the need for Nasa arises for which the mode Istaqraz can be used. Nasa is not prohibited in this mode of exchange. However, no excess or profit is permitted here since it would qualify as Riba An-Nasiyah which is illegitimate and prohibited as per the Hadith ( ) discussed in chapter two. For this reason the scholars who consider th e Bay of currency illegitimate also use the mode of Istaqraz. Istaqraz can be understood more clearly with the help of an example where Omar asks Zaid for Rs. 100,000 to invest in a business and promises to return this money after a month. This loan would be permissible if Zaid agrees to take back exactly what he had loaned. However if he demands even a rupee more from Omar, it will qualify as Riba. Nasa would be allowed here since this would not be Bay of the amount but a loan given to Omar by Zaid. This is known as Istaqraz.

RULE OF HUNDI IN CURRENCY EXCHANGE

As per the reasons stated by Justice Mufti Taqi Usmani, as discussed above, Hundi is not allowed in BaySurf because there is no concept of possession in Hundi.
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153 Hence the mode of Istaqraz can be used here as well. For instance Omar and Zaid are both living in Pakistan and Omar gives Zaid a loan of 500 Riyals asking that he return this amount to his father on his visit to Saudi Arabia next month. Meanwhile Zaid is free to spend this amount as he wishes and is bound to return the money to his father on his visit to Saudi Arabia. Zaid can also request Omar the travel expenses incurred if it is legally allowed.

THE DEFINITION OF SUFTAJA

The term Suftaja will be discussed in detail later. At this point it is important to understand the meaning of Suftaja and its implications in the light of Shariah. Literal Meaning of Suftaja: Suftaja is a Persian term. Its literal meaning means to 1 strengthen. Terminological Meaning: In terminological references Suftaja refers to a financial transaction. For instance Omar loans an amount to Zaid on a condition that he or his representative will return it to Omar or his representative at a specific, 2 mutually agreed geographical location such as another town, city or country.

SUFTAJA IN CONTEXT OF SHARIAH AND JURISPRUDENCE

Some scholars discuss Suftaja in the chapter of loan while others discuss it in the chapter of Hawala. To surmise: 1. 2. 3. Majority of scholars believe that Suftaja qualifies as Qard or loan. Some scholars refer to it as Hawala. Some scholars also refer to it as Ijara.

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154

SHARIAH RULINGS ON SUFTAJA

There is a difference of opinion among scholars regarding the rulings related to Suftaja. One faction considers Ijara not permissible and reprehensible. This group includes Imam Ibn-e-Sereen, Imam Qatadah, Imam Shabi, Imam Nakhl. Of the four imams, Imam Abu Hanifa (RA) and Hazrat Imam Shafii (RA) concur with this opinion. According to some references, Imam Malik (RA) also holds the same 1 opinion. The second group considers Suftaja legitimate and includes some of the companions of the Holy Prophet (PBUH) such as Ibn-e-Abbas (RAA), Ibn-e-Zubair (RAA), Hazrat Ali (KAW) and Hazrat Hasan Ibn-e-Ali (RAA). The group of Tabeeen also includes Abd-ur-Rehman Bin Aswad, Ayub, Imam Suri, Imam Ishaq, Imam ibn Hanbal, and the scholars Allama Ibn-e-Qadama, Abu Yali, Imam Ibn-e-Tamiyya, and Imam Ibn Al-Qeem (RA).

SUMMARY OF THE VIEWPOINT OF THE FIRST G ROUP

The objective of Suftaja is Suqoot-e-Khatr-e-Taqreeq or a type of benefit acquired by the creditor due to the loan he has given. This has been bluntly declared prohibited as illustrated by the Hadith that any benefit over a loan is Riba. Companions of the Prophet (SAW) disliked loans which yielded benefits. It is stated in the Ibn Abi Shaeba: " :" Hazrat Atta states that companions of Prophet (SAW) considered all 2 such loans as reprehensible which could yield some sort of benefit.

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155 Also any loan contract is based on Ihsan and Taburru. Therefore if it is conditioned with Suftaja, then it will deviate from its actual purpose which is not correct.

ILLAH OF PROHIBITION OF SUFTAJA

Three points are stated in this context: 1. 2. The popular Illah, Jar-e-Manfeat. Prevention from Kalfat-e-Qard where some scholars explain that if the item being loaned is heavy and requires effort or Kalfat to transport, then it is not permissible to loan such as item with the condition of 1 Suftaja. Hazrat Imam Malik (RA) states that Tagauyyur-e-Saman is another of its Illah. If the value of the loaned item is different at the place where the item is due to be returned, then this will cause a variation in the amount 2 of the loan which is impermissible.

3.

EXEMPTIONS ()
The scholars who consider Suftaja to be prohibited state the following two cases in this context: 1. Suftaja is legitimate if it is agreed upon after the loan has been given. This is because the objective now is not benefit but Ihsan and Taburru. The previously stated Hadith condemns the benefit [which is Mashroot and Maruf, if not then it will qualify as Ihsan and Taburru]. Hazrat Ibn3 e-Abbas and Ibn-e-Zubair (RAA) have a similar viewpoint on Suftaja.

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2.

156 1 If there is a threat of robbery or loss, then Suftaja is allowed.

Circumstances such as these are very common in the present day and age hence the relaxation granted by the Maliki and Hanbali Schools of Thought can be adopted during time of need. Additional implications of Suftaja will be discussed under money order.

VIEWPOINT OF THE SECOND GROUP

Certain companions of the Prophet (SAW) like Hazrat Ibn-e-Abbas (RAA), Hazrat Ibn-e-Omar (RAA) consider Suftaja legitimate. Some Tabeeen like Ibn-e-Sereen 2 (RA) also agree that Suftaja and similar modes are legitimate. The strongest justification presented in support of this legitimacy is that Suftaja allows both parties to enjoy the benefit over the loaned amount; both the debtor and creditor gain something out of the transaction. When the creditor pays the fee, he gains the advantage of Suqoot-e-Khatr-e-Taqreeq. For this reason it is not prohibited in Shariah since both parties benefit from the transaction. Allama Ibn-e-Qadama states: " " The intention behind Suftaja is a proof of its validity because it benefitsboth parties and none of them suffer any loss. Shariah also permits matters in which there is no loss and declares them permissible. Also its nature is not expressly mentioned in Shariah, therefore it is 3 compulsory to maintain it over ibaha (permissibility). Allama Ibn-e-Taymiyya concurs with this viewpoint: " "

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157 and some time the debtor also gains over a loan, like in case of Suftaja. This is probably why some scholars consider it reprehensible when actually it is not reprehensible. As the creditor is also the 1 beneficiary, hence both parties gain something. In the same context, Allama Ibn-e-Al-Qeem states: " () -" and justification of Imam Ahmad (RA) refers to Ibn Al-Manzer (RA), as both parties reap the benefit, not just the creditor. The sole gain of creditor qualifies as Riba, like using the property or transport of debtor, accepting gifts from him,or asking him favors. The debtor gains nothing from it, only the creditor enjoys the benefits. But here (in case of Suftaja) the benefit is mutually shared, therefore it will rather qualify as 2 cooperation and partnership. All this evidence from jurisprudence indicates that the prohibition of Suftaja in Hadith is from the benefit which is earned solely by the creditor. However if both parties become beneficiaries, then this would be beyond the condition specified in the Hadith.

ANALYSIS AND DEBATE

The second viewpoint is contrary to the apparent meaning of the stated Hadith. For instance if this point is assumed correct for the sake of argument, then the interest charged on all business loans would also be considered legitimate since these loans yield benefit for both parties. This means that it would be allowed for a businessman to earn by investing the money in profitable ventures and pay the profit to the bank in the form of interest. This becomes a risky situation as any agreement with the second viewpoint will render legitimate all interest based business loans offered by the commercial banks nowadays. This makes concurrence with this viewpoint a dodgy issue. There is also a possibility that the
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158 viewpoint of the companions of the Prophet (SAW) has been rendered legitimate under some under context where it could be some other form of Suftaja or could have been allowed only in the case of security threat. The best option here is not to take this viewpoint as it is. The safest course of action would be to consider Suftaja reprehensible in all ordinary matters and its use should be considered permitted only in times of acute need.

MONEY ORDER
Money order is a way to dispatch money from one place to another. When money orders are sent through post offices, a form has to be submitted with the money at the post office. The post office charges a fee proportionate to the amount of money being sent and issues a receipt. The money is then transferred to the desired destination and an acknowledgement note is sent to the dispatcher after confirmation of delivery. If the money is lost during the dispatch, the post office is liable to compensate for the loss. The question here is whether the money handed to the post office is a loan or a deposit. If it is a loan, then the dispatcher will be the creditor and the post office will be the debtor. If it is a deposit, then the dispatcher is Mustaajir or employer and the post office is the Ajeer or employee. In the latter scenario, the currency notes will have to be stored separately in a sealed envelope so that they do not mix with other money. This is to ensure that the same notes with the same serial numbers are dispatched to the destination. However this does not happen in reality. According to Imam Abu Hanifa (RA), if the money is treated as a deposit and is misplaced by the post office then the post office is not liable to compensate for the loss even though the post office is the guarantor. Keeping the related rulings in view, it is more appropriate to consider the post office a debtor of the amount. This could result in two scenarios: 1. The fee which the post office demands is in addition to the amount being transferred. Since the principal amount is a credit for the post office, therefore any increase over it would be prohibited and illegitimate as it would constitute Riba. This situation can be categorized as Suftaja since it consists of Suqoot-eKhatar-e-Tareeq or the avoidance of risk. This is not allowed either since as per Shariah any increase on credit is Riba.

2.

159 This issue is addressed in Imdad Al-Fatawee as follows: Any increase in a loan is Riba as per Shariah principle s. First it should be evaluated that the principal amount given to the post office is a loan or a deposit? As we know that the post office has to compensate the loss of principal, which indicates that this amount is not a deposit but a loan or credit. The fee which is required to be paid by the dispatcher in excess to the loaned amount is prohibited. Even if it is not considered a fee, then according to Shariah principles any excess on a credit is Riba, which in context of Suftaja with Suqoot-e-Khatr-e-Taqreeq,(to avoid the risk of 1 a way) is also not advisable . The following solutions are recommended for the situation: 1. The fee demanded by the post office should not be considered part of the loan but should be declared a service charge to cover the clerical, operational and logistic expenses incurred in the process of money transfer. This matter is not Suftaja which depends on Suqoot-e-Khatar-e-Tareeq (which has already been discussed in detail earlier) but to the contrary the objective is to deliver money to a destination. This is referred to as Isal or transfer and charging a fee is allowed in conducting matters of Isal.

2.

This issue has been discussed in Ahsan Al-Fatawee as follows: In the authors point of view if the objective of money transfer is not Suqoot -eKhatre-e-Taqreeq but Isal only then it cannot be considered a reprehensible form of Suftaja. Though the two terms may seem similar, there is a difference in mea ns and end. For a local loan the extra money or fee is for safe keeping the amount and hence should not be considered Riba over a loan. The author confirms this view through research of footnote of Moulana Fatah Muhammad Taib (RA) stated in Hashiah Takmalta Umdah Al-Raiya of Shrah Waqiah in which different types of rulings related to money order and Hundi are discussed.

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160 " ( ) : : 1 " It can be concluded from the statement of Moulana Fatah Muhammad Taib that regardless of whether the objective is Suqoot-e-Khatr-e-Taqreeq, the debtor gets a profit in both cases and this is prohibited as it qualifies as Riba. Suqoot-e-Khatre-Taqreeq falls within the meaning of Kafalat which is impermissible since it is not premeditated. Demanding a fee for Kafalat is prohibited in Shariah. However Kafalat over Isal is permissible as this is premeditated if decided earlier by the parties. Therefore a previously decided fee for this is allowed. This means that the prohibition of Suqoot-e-Khatr-e-Taqreeq does not imply a prohibition of Isal as well. If the money qualifies as Suftaja, then according to Balva Aamma matters and in cases of acute necessity, a ruling may be devised for the sake of permissibility in the light of other related verdicts. As discussed earlier, some scholars consider Suftaja permissible. According to Imdad Al-Fatawee: Even if any of the four Imams is in favor of Suftaja, even then the use of 2 Suftaja will be permissible only when needed. It is further stated in Ahsan Al-Fatawee: If it qualifies as Suftaja, then it is considered permissible by Imam 3 Ahmad (RA). Violation of the rule is permitted in cases of acute need. To surmise, the issue of money order is legitimate. It is permissible to send money via money order and any fee charged by the post office in this context is legitimate. Bank drafts fall under the same rulings as money order and hence are also legitimate.

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161

EXCHANGE OF CURRENCY OF DIFFERENT COUNTRIES

As previously discussed, currencies of different countries differ by nature of values corresponding to the economy of the respective country. Similarly the Pakistani rupee differs from the US dollar and Saudi riyal and its value depends upon the macro economic factors of Pakistan. At present almost all countries follow the floating exchange rate regime which is contrary to the fixed exchange rate system where all currencies were pegged to the dollar which in turn was fictitiously pegged to gold. The fixed exchange rate system dissolved following the abolishment of the Brettonwood Agreement. Presently the rate of exchange of a particular currency depends upon the demand of the currency which dominates the foreign exchange reserves of the respective country, which are dollars in case of Pakistan. Since there isnt any fixed standard, therefore the rate of exchange fluctuates continually depending upon the forces of demand and supply. This fluctuation and consequent variation in value differs with every currency, leading to contrasting values between currencies. It is for this reason that currencies cannot be assumed to be identical or have similar natures. The exchange of currencies is possible under an exchange rate mutually agreed among the trading parties. For instance a single dollar is exchanged with Rs. 83 and so forth. Since this exchange is not BaySurf therefore Nasa and their credit sale is permissible. However this permissibility should not be confused with the statement of Mufti Taqi Usmani, discussed earlier in the chapter, in which he prohibits Nasiyah in Fuloos. This is because Mufti Usmani insists on spot exchange of Fuloos or currencies of the same origin and nature such as Pakistani rupees with Pakistani rupees. However here the discussion is centered on the exchange of currencies of different origin such as Pakistani rupees with American dollars. The opinion on this varies among scholars of different schools of thought.

OPINION OF HANAFIA SCHOLARS

According to the Hanafi scholars, the sale of one Fals with two Fuloos is illegitimate because they are of the same nature. Hence the additional Fals in this transaction qualifies as Riba. Similarly the exchange of Rs. 25 with Rs. 20 is not permissible as the additional Rs. 5 would be considered Riba. This exchange would be permitted if currencies of similar or different denominations but of different nature are being exchanged. For instance Rs. 25 can be exchanged with 20 or 50 Japanese yen.

162

OPINION OF MALIKIA SCHOLARS

The scholars of Maliki School consider currency to be among the items upon which the rules of Riba are applicable. However they consider any difference in the exchange of currencies of different origins permissible and not Riba, as per the opinion of the Hanafi scholars also.

OPINION OF SHAFI I AND HANBALI SCHOLARS

The Shafii and Hanbali scholars concur with the views of the scholars from the Hanafi and Maliki Schools of Thought. However they insist upon the additional 1 following conditions for such exchange: 1. 2. At least one party must possess or deliver the currency on the spot so as not to violate the Hadith defined principle of no sale of debt for debt. The ownership of the currency being sold is mandatory () . The absence of this condition in the transaction is considered a violation of another Hadith. Therefore the trade of any currency not yet acquired cannot be done in lieu of a promissory receipt, a concept commonly used in currency markets.

RULES PERTAINING TO HUNDI IN CURRENCY EXCHANGE

It has now been established that currencies of different origins differ intrinsically and their credit sale and Nasa are permissible. This means that there is no issue in this regard as far as Hundi is concerned. For instance, Omar sells 1,000 Riyals in Saudi Arabia to Zaid and asks him to deliver the Riyals in Pakistani Rupees 16,000 to his family in Pakistan. This deal would be permissible only if Zaid acquires spot possession of the Riyals at the time of making the contract. Whether or not such a contract is permissible by local laws also needs to be taken into consideration as otherwise it would be considered a violation of the local law.

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163

SOME MISCONCEPTIONS AND CLARIFICATIONS

1. Some scholars assume that the credit sale of one currency with another is usurious and hence illegitimate. For instance Omar sells $50 to Zaid on credit. This would be Rs. 4,000 as per the exchange rate of Rs. 80 per dollar. After five days Zaid wishes to return the amount but the exchange rate has gone up to Rs. 83 per dollar. Zaid pays back the $50 as per the running exchange rate of Rs. 83. The additional Rs. 150 he pays to Omar are considered Riba and hence illegitimate by some scholars. In reality since the nature of both currencies differs, this excess is allowed and will not be considered Riba even if it is in the form of 1 credit. Furthermore Zaid is obliged to return the $50 to Omar even at the current rate since both parties had mutually consented to do this, whether in the form of $50 or the Rupee equivalent. Therefore in terms of value there is no increase over the principal amount. Some scholars declare the credit sale of currencies as illegitimate. According to them the exchange of currencies is BaySurf and requires possession on both sides and spot exchange. These scholars do not consider permissible any loan or credit in the exchange of currencies. In context it is stated in the book Shariah Standards () :

2.

:" -" Trading of currencies is correct only if the following conditions is met; the trading parties must exchange the currencies before concluding their 2 meeting, whether the possession is physical or legal. It is also mentioned in Tatoor Al-Naqood () : " " In case where the nature of subject matter is different, like exchange of gold for silver, or in case of paper currencies, which compulsorily need to
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164 be in cash form, possession must be acquired by both parties; however 1 excess on any side may be allowed. Any argument in this matter can be resolved by considering the fact that for BaySurf it is mandatory for both parties to possess Saman-e-Khilqi. If either of the two sides possesses Saman-e-Urfi (costmary) then the exchange will not qualify as BaySurf. Additionally, possession by only one party will be required, credit will be allowed, and only one side needs to acquire spot possession while the other party has the option to wait for some time for the payment with mutual consent. It is stated in Ftah Al-Qadeer: : " " It is stated in Shrah Tahavee that if a person purchases 100 Fuloos for 1 dirham and if either buyer or seller acquires possession of Fuloos or dirham and the other party defers possession to a later time, then this sale would be legitimate. This is because both parties have mutually 2 agreed on the exchange of one subject matter with the other. In the above case Saman-e-Urfi is being exchanged with Saman-e-Khilqi. Therefore possession by only one party is considered necessary. Allama Shami (RA) has quoted three traditions with reference to this. Among these only the one which confirms unilateral possession is accepted as appropriate by the greater majority of scholars: " " It can be extracted from Kitab Al-Usl that possession on only one side is sufficient and Al-Jamia tells us that possession is mandatory by both 3 parties.

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165 Allama Shami (RA) further quotes from Bazazia: ":" Allama Hanuti (RA) was asked about the credit sale of gold against Fuloos and he confirmed that it is legitimate but possession should at least be unilateral. As stated in Bazazia, if a person purchases one dirham for 100 Fuloos then it is sufficient for one party to acquire possession. The case would be similar if gold and silver are sold for Fulooos. Allama Sarkhasi concurs with this opinion: " " When a person purchases Fuloos for dirhams and the Fuloos are not in the custody of the seller, then it would be legitimate for him to pay dirham to the seller. This is because Fuloos are Saman like cash. As explained, the rule of contract of Saman is Wujoob or being mandatory and Wodood or existence and the validity of the contract does not require that the Saman be in the possession of the seller. The case would 1 be similar with transactions of dirham and dinar. In the light of the above statements, it is quite clear that it is not mandatory for both parties to have possession of the subject matter even if Saman-e-Khilqi is present on one side of the transaction. If instead of Saman-e-Khilqi, paper currencies like Pakistani rupees or Saudi riyals are used on both sides, possession would still be required by just one party for the same reason.

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166

SALE OF CURRENCY AT A RATE DIFFERENT THAN THE OFFICIAL RATE

The next logical question in the discussion would be, whether or not it is permissible to exchange currencies at rates different than those established in the market by governments. For instance if the official rate is Rs. 80 per dollar, then would it be legitimate for anyone to sell $1 for Rs. 83 or Rs. 77. When this question is viewed in the light of the recently discussed principles, then there is no problem with such an exchange. This is because different currencies differ in nature and value. Therefore any exchange rate by mutual consent of both parties is permissible. There is no prohibition on any such exchange by Shariah and hence no variation in the rate of exchange which differs from the official rate of exchange will be considered Riba. However there are certain other reasons why such an exchange is not deemed permissible. 1. 2. Such an exchange should be avoided as it is likely to be used as an excuse for Riba. Prices of some items are mandatorily fixed by governments. Currency is one of these items and it is an important civic duty to obey these fixations. Therefore: a) It is a matter of principle for the public to follow all laws which are not in violation with the Shariah b) It is an understood social agreement between people and their governments that they will abide by the laws established in that 1 society unless those laws contradict the Shariah in any manner.

In some instances there are different exchange rates of the same currency circulating in the same market. The details of this will be discussed later.

CREDIT SALE OF CURRENCIES OF DIFFERENT ORIGIN

The possibility of exchanging currency with similar currency with time difference has already been discussed. The exchange of currencies of different origins is also permitted on similar grounds. For instance if Omar loans $100 to Zaid for a

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167 month and Zaid returns the amount in Pakistani rupees, then this exchange is permissible under the following conditions: 1. 2. Both parties agree at the time of the contract that the borrowed money will be returned in a certain currency. Though there wasnt any such understanding at the time of the deal, the creditor agrees to accept or the debtor agrees to return the money in the requested currency at the time of return.

The second condition here is undisputedly correct. However the first condition will have a condition of nullification as it is a credit based transaction. The contract itself wont be nullified but the condition of return in a certain currency will be open to nullification. This means that Zaid can return the money in dollars to Omar and is not bound to return the money in Pakistani rupees only. In the first scenario, unless Zaid returns the amount in the same currency in which it was borrowed, he will be required to pay in the different currency according to the running exchange rate. For instance if at the time of loan the exchange rate was Rs. 80 per dollar and the running rate at the time of return is Rs. 83 per dollar, then Zaid is required to return the loan according to Rs. 83 per dollar if he intends to pay in rupees. However if he is returning the money in dollars then he will return $100 only. The Shariah rule regarding loans states: "" For a loan, payment should of equal value. According to Justice Taqi Usmani in the discussion on the issue of indexation: "" It is important from the Shariah point of view that the payment of the 1 loan should be in equal value. This rule emphasizes that either Zaid pays $100 to Omar after a month or pays him the rupees equivalent to $100 dollar as per the current exchange rate. It will not be permitted for Zaid to insist on paying on the older exchange rate of Rs. 80 per dollar as then Omar will not receive an amount equal to $100. Similarly Omar
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168 cannot insist on an exchange rate higher than the market rate since this would be in excess of the amount loaned and will qualify as Riba. In this context, there is a difference between a loan and a sale transaction. In a sale transaction any difference in the quantity being exchanged is allowed and will not qualify as Riba. However, in cases of currency exchange this difference in quantity is not permissible as per the above discussed reasons. For credit, any excess on either side is prohibited and illegitimate. To surmise, when the principal balance and the payback amount are in different currencies, then the running exchange rate at the time of return has to be upheld. Any variation in the payback amount which differs from the market exchange rate will be considered an impermissible difference in the principal loan which needs to be returned. Exchange rates can occur in the following three forms: 1. 2. 3. Bank rate. Open market rate. A rate in between the above two.

Bank rates and open market rates differ slightly, giving trading parties a certain limit within which the payback amount may be calculated. For instance if the bank rate is Rs. 82 per dollar and the open market rate is Rs. 83 per dollar, then the parties are allowed to mutually agree on an exchange rate which falls anywhere between these two amounts. No rate beyond this range will be permissible in currency conversion.

TWO WAY PROMISE IN INTERNATIONAL CURRENCY TRADE

Importers and exporters use the facility of foreign exchange core for their LC and import/export contracts. This facility is greatly significant for traders as otherwise it would be very difficult for them to estimate and prevent losses that can potentially occur due to fluctuations in the value of foreign currencies. Here the importer has to pay the supplier in the international market in dollars or some other foreign currency. This payment is made after the importer receives the required documentation from the supplier. But before any payments can be made, the importer first has to acquire the required foreign currency. Similarly

169 the exporter also receives his money in dollars which he later sells in order to purchase local currency. In conventional interest or Riba based financial systems, importers and exporters generally make a forward contract with banks under the following conditions after opening the LC: 1. 2. The duration of the contract is no less than one month. If payments are made before a months time, then the spot interbank exchange rates on the day of payment will be considered. According to the standard process, forward contract is concluded automatically on the predetermined date.

The conventional process of forward contract is as follows: 1. An importer is required to pay $1 million to a supplier in Taiwan after 90 days. However the importer does not know the exchange rate of dollars in advance and hence cannot plan ahead. He is also not allowed by law to directly purchase and hold this large amount of currency. Even if it had been legal, it still wouldnt be wide to block such substantial liquid cash for 90 days which would rather be invested in business. For all these reasons, he would prefer to avail the facility of forward contract as offered by a certain local bank, referred to as Bank A. It is now assumed that the spot exchange rate of a dollar is Rs. 80 on the day of the contract. After the contract, Bank A purchases $1 million at this rate from the open market and immediately sells it to Bank B at the same rate under the condition that regardless of what the exchange rate is after a month, Bank A will repurchase this amount back from Bank B at the rate of Rs. 81 per dollar. Bank A now makes a contract with the importer that after 90 days have elapsed, the bank will sell him these dollars at the rate of Rs. 81.1 per dollar. The additional Rs. 0.1 per dollar will be the bank fee for the transaction. A question that can be raised here is why Bank A would want to involve Bank B in the transaction when it could have dealt directly with the importer at the same rate, earning Rs. 1 per dollar as a profit. There are two scenarios which are likely to emerge in this context:

2.

3.

4.

170 After 90 days the importer pays Rs. 81.1 million to Bank A who in turn pay Rs. 81 million to Bank B to purchase the dollars at the predetermined rate. Rs. 0.1 million is the fee retained by Bank A and the $1 million are provided to the importer. This concludes the contract as per agreed conditions. b) After 20 days, before the period of 90 days has elapsed, the importer requests Bank A to cancel his contract. In this case he will have to pay a penalty in rupees equivalent to the difference in the agreed rate of Rs. 81.1 and the lesser of the following two amounts: i. The market rate on the day of the cancellation of the contract or ii. The market rate of dollar when the contract was written a) For instance, at the time of contract the exchange rate is Rs. 80 per dollar and after 20 days it is Rs. 81 per dollar. At the time of contract the importer had agreed to purchase the dollars at Rs. 81.1. After 20 days at the time of contract cancellation the importer in required to pay Rs. 1.1 million ({Rs. 81.1 Rs. 80 = Rs. 1.1} x 1 million) as a penalty. This was the conventional interest based procedure of currency purchase for international payments. The Shariah alternate for this addresses the important issue of where the interest is in this process and how this is avoided in Islamic bank processes. According to Shariah analysis, the importer made a contract to purchase the dollars before 90 days which brings the dollars in his constructive possession. However, since he hasnt yet paid yet, therefore these dollars will qualify as a loan. In case of cancellation of the contract, the penalty will become an excess over this loan and will hence qualify as Riba. The following steps are taken by Islamic banks in order to counteract this issue: Step 1: The importer contacts the Islamic Bank with the same request. The Islamic Bank now contacts Conventional Bank for a Two Way Promise, which is different than a contract. Under the Two Way Promise Islamic Bank agrees to purchase $1 million from Conventional Bank at a rate of Rs. 81 per dollar after 90 days. The present exchange rate is Rs. 80 per dollar and Conventional Bank purchases this amount from the market immediately so that it can be sold to Islamic Bank after 90 days.

171 Step 2: Islamic Bank and the importer now enter a Two Way Promise that after 90 days the importer will purchase $1 million from Islamic Bank at the rate of Rs. 81.1 per dollar so that Rs. 0.1 is the banks profit over each dollar. Here there are no questionable issues related to the first step. However in the second step, Islamic Bank will proceed as follows: 1. Islamic Bank will enter into a Forward Contract with Conventional Bank that it will sell the $1 million no longer required by the importer after 90 days to Conventional Bank. It is assumed that the predetermined rate of exchange between the two banks is Rs. 79 per dollar. Islamic Bank will charge a penalty from the importer over the violation of the Promise. As mentioned earlier, this Promise differs in nature from a conventional contract. The amount of penalty will be equal to the loss incurred by Conventional Bank at the rate of Rs. 2 per dollar (Rs. 81 Rs. 79). After 90 days have elapsed, Islamic Bank will purchase the dollars at a rate of Rs. 81 per dollar and will then sell it to Conventional Bank at Rs. 79 per dollar.

2.

3.

In the conventional method, the sale contract legally obliges both parties to transact at a future date. This is not allowed as per Shariah rulings and it also contains the anomaly of BayAina or credit sale. The alternate process proposed by Islamic Bank does not contain this anomaly and also avoids sale contract for a future date. As an alternative, it employs the approach of a Two Way Promise. Sale contracts for future dates are prohibited in Shariah. However there is a disagreement of scholars over the issue of trading parties promising to do a contract at later dates and then charging penalties in case of violation. There are two viewpoints in this regard: 1 Opinion: The party who breaks the promise is not obliged to pay any penalty or compensation to the other party. This viewpoint is established in all five conferences of Majma Al-Fiqah Al-Islami in Jeddah. The basis of this viewpoint is the verdict of Imam Malik (RA) in which he declares illegitimate Two Way Promises of all such matters or contracts which do not take place at the current time but are expected to conclude in the future. For instance in Shariah the sale of edible items is prohibited before they come into the possession of the seller due to the possibility of uncertainty. Hence Two Way Promises are also not
st

172 applicable here. However there are two opposing verdicts on this issue; one which declares such contracts impermissible and one which deems it permissible. ): ( According to Aezah Al-Masalik " : 1 " : " "

: " : 3 " also concurs The Shariah council of with this verdict: : " ( ) ()/ 4 " Arabic: In the same context, it is mentioned in " 5 "

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173 It is further stated in the same book: "1 " An analysis of the opinions of various scholars discussed above establishes a Two Way Promise to be an illegitimate contract. This is because it is akin to a sale contract in which the item or subject matter promised to be sold is not yet in the possession of the seller and the sale is conditioned to occur in the future. Such contracts are undisputedly illegitimate. 2 Opinion: According to this opinion, any penalty or compensation in a Two Way Promise is allowed if the promise is violated by either party. This point of view is held by the Hanafi and the Shafii scholars as stated in the following statements: : " 2 " : " : 3 "- ): ( According to Tatoor Al-Naqood " : : :
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174 : 1 -" The summary of these statements confirms that the scholars from these two schools of thought consider it appropriate for both parties to establish a Two Way Promise and also pay any compensation or loss incurred if this promise is violated. This point of view is also shared by Sahib-e-Itar Al-Hadiya ( 2 ). Justice Mufti Taqi Usmani concurs with the opinion and states: " " The statement of Qari Khan Sahib is appropriate i n a specific context that the Two Way Promise has been allowed by Hanafi Scholars for the sake of need of public. This is further confirmed that this kind of promise is due to Tarfeen as this is indeed for peoples need, and there is no 3 doubt that the requirement for allowing it is very clear.

ANALYSIS AND PREFERENCE OF THE SECOND VIEWPOINT

The second viewpoint is preferred by the author as well, since the matter is not Mansoos ( )but Ijtihadi or a Shariah compliant innovation in rules. Hence considering the need of the time, the compensation of loss has been permitted in a Two Way Promise. This will however apply only when one part y in the contract is genuinely suffering a loss because of the other. The first viewpoint compares the two way promise with future contract of items which are not in the possession of the trading parties. This comparison is not very sound because the rules and consequences in the case of a contract differ. These differences are as follows: 1. A promise is just a kind of assurance by both parties to each other that they will bind themselves into a contract in the near future. This means

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175 that both parties will conduct a transaction as per the promise on a predetermined date. The ownership of the subject matter is shifted to the buyer immediately after he signs the contract. In the sale of a future sale contract, the subject matter comes into his constructive ownership. Physical ownership is acquired only after the buyer makes the payment to the seller against the subject matter.

For instance if a person purchases a house or a car and promises to pay the required amount at a later time, he becomes a creditor immediately after signing the contract and the asset will be considered in his ownership. Consequently all laws which are applicable on a creditor will be applied to him; he will not be liable to pay Zakat over the amount he owes to the seller and if he becomes a defaulter due to unforeseen circumstances, he will be treated accordingly. Contrary to this a Two Way Promise does not pass on the ownership of any item or asset to the other party. Hence none of the same laws or consequences are applicable here as in the previously discussed case. If as per their promise, both parties agree to enter a contract on the decided time, then the appropriate rules 1 and regulations will become applicable on them.

EFFECTS OF PENALTY IN A TWO WAY PROMISE

Penalty is a way of forcing both parties to honor their promise and refrain from violating it. If the promise is broken by either party for any reason, then as per the law the violator will be bound to compensate for the losses incurred by the other party. This is supported by the following Hadith: "" There is no harm in Islam and also it doesnt allow harm to others.
2

The above analysis and discussion confirms that the Two Way Promise is the preferred way of currency exchange in conducting international monetary transactions.

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176

A NEW INTERNATIONAL MODE OF CURRENCY TRADE

The business of currency trade has expanded exponentially where the current total size of the currency market trading is in trillions of dollars. According to some estimates, this makes it the largest business in the world. The sale or purchase decision of any currency in this business is based on the fluctuation of currency prices in the international market. These fluctuations depend upon the health of the respective economies to which the currencies belong. This information is generally published from the USA and is available on the Internet in real time. However, individuals cannot trade in currency directly but have to go through different brokerage houses and their agents. The details on this have already been discussed in the last chapter that any person can become a member of client of a brokerage house by submitting a fee of say $1,000 which would be 5% of the lot size of the dollar currency. After gaining membership, the person can ask the agent to purchase a lot of say $200,000 on his behalf. In other words, he has been allowed to purchase a lot only on the basis of the 5% of the total amount which he invested as token money. After doing so, the client can trade it as he pleases. The main objective of the trader or the client is to maximize his profit and minimize any possible losses. In order to do so he also continually refers to the opinions of experts in the field on how different currencies are likely to fluctuate in the near future. In addition to this, he keeps an eye on the news about the economies of different countries and the health of their currencies. He also keeps track of the exchange rates to help forecast expected future values of various currencies in the near future. After a detailed analysis of the market, he decides to purchase or sell his lot of currency and informs his agent on his decision. As obvious, physical possession of the lot never occurs here and only a constructive ownership of the lot is transferred to the client in such a way that he reaps the profit or bears the loss which incurs due to the fluctuation of the value of the respective currency. For instance if a person purchases a lot of dollars at an exchange rate of Rs. 81 per dollar and sells this lot at the rate of Rs. 81.1 per dollar, this yields him a profit of Rs. 0.1 per dollar or Rs. 20,000 over trading the lot of $200,000. Similarly if the value of the dollar declines to Rs. 80.9 per dollar than a loss of Rs. 0.1 is incurred.

177 The agents in the business offer certain facilitations to the trader or client which allows him to trade single lots. These facilitations include: 1. 2. 3. 4. Trading on a phone call. Access to the market where the trading is performed. Access to required information through the Internet. A grantee for say $200,000.

On each trade the agent receives a fixed fee regardless of whether the client earns a profit or suffers a loss. If for instance a client waits for five days before selling his lot, he has to pay $20 per day to his agent who makes $100 in five days. Such business deals are not permissible from the Shariah point of view for the following reasons: 1. The lot is not specifically allocated to the client and its value is just written on the clients account. Only the profit and loss incurred during the trading is received by the client. This makes this transaction a form of gambling. For constructive ownership of currency, it is not sufficient that only the profit or loss incurred due to fluctuating exchange rates be borne by the client. The necessary condition here is that either the client or his agent takes the physical possession of the currency so that if the currency is destroyed or stolen due to unforeseen circumstances, the client would be liable for the loss. Also from the Shariah point of view, any item other than currency such as cereals may be valued on the basis of information available about their specification. For instance the value of wheat can be determined from its quantity, date of production or remaining shelf life etc. Contrary to this, currency cannot be valued unless and until its possession has been acquired by the client or his agent. In the process of trading described above, the client only pays $1,000 while the remaining is paid by the agent. This means that the client is indebted by an amount of $199,000 in an lot size of $200,000. Furthermore the client also doesnt acquire the ownership of the lot as required by Shariah hence making the agent liable to pay the required amount to the client. This creates a situation equivalent to the sale of debt for debt ( ) which is prohibited in Shariah.

2.

3.

4.

178 The fee which the agent charges over the lot amount qualifies as Riba since the lot amount is basically a credit given to the client. Secondly, this fee is a guarantee fee ( ) from the Shariah point of view. Both these conditions are not acceptable as per Shariah rulings.

179

CHAPTER-7: VALUE OF MONEY

As discussed earlier, the value of paper currency in prior times was pegged to the value of gold and silver. Later when paper currency was no longer backed with gold or silver, its potential to purchase goods and services became the standard of its value. This is generally referred to as purchasing power or in Arabic. Today money does not possess any intrinsic utility where unlike gold and silver it cannot be used for making utensils, jewelry, or microprocessors. Silver has been known for its antibacterial properties since ancient times and even at present it is used as a raw material in a variety of sterilization tools and utensils in industrial and domestic settings. To the contrary paper currency has never possessed such redeemable properties and its sole use has always been as a medium of exchange in trade. The value of money is also a function of its demand and supply relative to that of other goods and services. When over a period of time a greater quantity of money is needed to purchase a certain commodity, then its value or purchasing power is said to have decreased. If the case is to the contrary where less money is required to purchase the same commodity, then the value or purchasing power is said to have increased. For instance, if in 2007 a certain item was priced at Rs. 100 and if in 2008 the same item had the price tag of Rs. 120, then it is concluded that the value of Rupee has decreased. This indicates that the cost of 1 commodities or services have an inverse relationship with the value of money.

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180
Purchasing Power

Prices of Goods and Services

TYPES OF FLUCTUATION IN VALUE OF MONEY

Fluctuation in money values is not a recent phenomenon but has been experienced ever since money has been in use. For this reason jurists have done detailed discussions on this subject in countless books and related texts. These discussions will be reviewed here thoroughly in order to derive Shariah compliant rules and regulations for trade during inflation and deflation. An overview of these discussions is also necessary since the fluctuation of the value of currency has serious implications for the overall economic health of any given society. In context of fluctuations, the following four types are generally observed: 1. 2. 3. 4. Inqita-e-Zar or Forfeiture. Kasad-e-Zar or Depression. Ifrat-e-Zar or inflation. Tafreet-e-Zar or deflation.

FORFEITURE OR INQITA-E-ZAR
In jurisprudence, forfeiture refers to a situation where money is pulled from the market and is held by money changers or by the general public. Allama Shami (RA) defines it as follows: ""

Introduction to Economic Principles, Page-332 The Theory of Money and Credit, Page-117

181 "If money is not found in markets but is held by money changers or in the 1 homes (of general public)." According to Allama Zarrkani and Bnani: "" Forfeiture is a condition in which money disappears from the city where it is needed and Fuloos is available at the time of possession in some 2 other city.

OPINIONS OF JURISTS OF DIFFERENT SCHOOLS ON IMPLICATIONS OF FORFEITURE ON TRADE

According to Imam Abu Hanifa (RA), forfeiture renders a sale contract null and void. However certain other scholars and the three other Imams (RA) differ in opinions; According to Allama Shami (RA): : : " -" "In a situation of forfeiture, i.e. if money is not available in the markets though available at money changers or is in personal custody of public then the sale contract will be considered as null and void. Now the price and payment of the item being sold becomes compulsory (i.e. payment should be made to the seller) according to the value of money identified 3 on the day the forfeiture occurred. This verdict is the most preferred." He further states: -""

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182 "If money is gone then the payment in gold and silver (coins) is compulsory for him (buyer) as per the value of money identified just 1 before the occurrence of forfeiture and this is an appropriate rule." Allama Shami (RA) writes in one of his magazines: -"" "In case of forfeiture, when money is nowhere to be found, it is compulsory for him (buyer) to make the payment in gold and silver, as per the value of money identified just before the forfeiture occurred. This 2 is a correct rule." He further states in the same magazine: -"" "If dirhams are completely gone today, then before this disappearance the price of dirham is compulsory on him (buyer). This is the opinion of 3 Imam Muhammad (RA) and there is also a Fatwa attesting to this." Imam Abu Yousuf (RA), Imam Muhammad and the three other Imams agree that the price of goods or services established just before the forfeiture is the compulsory and fixed price for payment and the sale contract remains intact. There is however a disagreement regarding the occasion which needs to be considered in order to determine this price. According to Maliki scholars, the payment is mandatory as per the price and the value of money identified at the time that the purchase decision was made. For Shafii scholars the payment should be as per the value at the time the seller demands the payment from the buyer. In case of BayMoajjal or credit sale, the payment is to be made as per the value of money at the time the payment is due. For Hanbali scholars and Imam Muhammad (RA), the right price is the one valid on the day before the forfeiture. For Hanbali scholars the payment is mandatory in the exact equivalent of the currency or Misl such as gold and silver if available. For Imam Abu Yousuf

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183 (RA) the payment is to be made as per the value of money valid on the very day of the contract. In short: Imam Abu Hanifa: The contract will be considered null and void. Imam Malik: The valid price will be the one determined at the time of the purchase decision. Imam Shafii: The price valid at the time the payment is due or is made. Imam Hanbal and Shafii: The price valid just before the time of the forfeiture. Imam Abu Yousuf (RA): The valid price will be the one at the time the payment for the contract is being made.

According to Allama Shami (RA): " : : : : : -" "At the time of forfeiture or depression the sale contract is not rendered as null and void as per see, when the parties specify a particular form of money, as there are three verdicts of jurisprudents in case if dirhams are falsified. Imam-e-Azam (Imam Abu Hanifa RE) declares it (the contract) as null and void, and the other scholars declare it otherwise. Same is the opinion of Imam Shafii and Imam Ahmed. Imam Abu Yousuf (RA) states that the price decided at the time of contract is obligatory, and Imam Muhammad (RA) states that the price which was identified just before forfeiture is compulsory. Fatwa stated in 'Zakhira' is based on the verdict of Imam Abu Yousuf (RA) and the Fatwa which is stated in 'Tatimma Muhtar' and 'Haqaiq' is as per the verdict of 1 Imam Muhammad (RA), which is for the sake of the ease of public."

T HE B ASIS OF THE V ERDICT OF I MAM A BU H ANIFA :

According to Imam Abu Hanifa, if there is no longer any money, then Saman has also been abolished. Since Bay or sale is not possible without Saman, therefore
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184 the contract will be rendered null and void. In the same context, Imam Abu Yousuf (RA) focuses on the time of the contract because he believes that the buyer is obliged to pay what was agreed at the time the contract was made. Therefore the value of money at the time of contract is considered a critical point in payment by Imam Abu Yousuf (RA). According to Imam Muhammad (RA), the value of money at the time of forfeiture should be the one considered for payment. This is because the buyer is handicapped just after the forfeiture but was able to pay just before it. Therefore as per Imam Muhammad (RA), the time just before the forfeiture is considered in determining the payment value.

MALIKI SCHOOL OF THOUGHT:

There are two opinions in the Malikia school of thought on the issue: a) The time of the decision of trade by the buyer and seller is considered. b) Whichever of the following two occasion is further away is considered: i) The time when the payment was due. ii) The time when the forfeiture occurred.

:" : : : : : : : : : 1 -" : From the above statement, it can be concluded that the first opinion is more established and authentic in the Maliki school.
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185

OPINION OF THE SHAFI I SCHOLARS:

According to the Shafii scholars, if Misl or alternative mode of payment is not available then the payment value before the forfeiture will be considered valid. However if an exact Misl is available, then spot payment is compulsory via the alternative mode of payment. For instance, dirham and dinar are the Misl for Fuloos or two fifty rupee notes are Misl for a single hundred rupee note. Allama Ramli (RA) states in this context: -"" If money is no longer available and if the exact alternate or Misl for it is available then spot payment becomes compulsory. If Misl is not available, then the value at the time just before the forfeiture will be 1 mandatory on the buyer (at a later time). According to Ibn Hajra Al-Haetmi (RA) states: -"" "The payment must be made in an alternate currency (like dollars) if the governor cancels the local money, as this protects the rights of the 2 seller." In the words of Allama Seoti (RA): " -" "If old Fuloos disappears and become extinct, then the payment will be 3 due in gold and silver as per the value identified just before forfeiture."

OPINION OF HANBALI SCHOLARS:

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186 The opinion of the Hanbali scholars is similar to that of Imam Muhammad (RA); the value just before the forfeiture will be considered valid. Allama Bahoti (RA) states in this context: :" " If the alternate is also nullified then the debtor will be obliged to pay the exact equivalent (Misl) of the amount which was valid at the time just before forfeiture. Payment will also be due for those items which are not priced on the basis of their weight, length or volume. (In cases of 1 non-payment) this matter will be considered similar to Ghasab (theft).

DEPRESSION
Depression occurs when the public loses confidence in the currency to such an extent that they stop using it entirely. Allama Ibn-e-Abedeen states: -" : " Depression occurs when the use of money i s discontinued from all 2 cities. Depression differs from forfeiture in the sense that in forfeiture money disappears or is withdrawn from the market. To the contrary, in depression the money remains in the market but is not used. This phenomenon also evaporates the Samaniat of Zarr-e-Istilahi or fiat currency and places it into the category of goods. The scholars from the Hanafi School have similar rules for dealing with forfeiture and depression: 1. For the Hanafi scholars, existing contracts become null and void when depression occurs. However if money is still being used even if just at a few locations, then some Hanafi scholars agree to the validity of contracts while others maintain that these contracts will be rendered

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187 void. When contracts are considered void and the subject matter is still available then the buyer has to return it to the seller. If the subject matter is not available due to consumption or sale to another party, then there are two possible conditions: a) If the item in question is measurable or weighable such as 5 kg wheat, then its equivalent needs to be returned to the seller. b) If the item in question is not weighable or measurable, such as livestock or a car, then any item equivalent to its price will have to be returned to the seller. In matters involving credit or dowry, the money which has been subjected to depression would be considered for the reimbursement. 2. Hazraat Sahibeen unanimously agree that a contract is not automatically voided in case of depression but the seller has the right to declare it null if he desires. If he does not declare it null, then the buyer will be obliged to make the payment if the seller demands. There is however a difference of opinion regarding the determination of the payment value: a) As per Imam Abu Yousuf (RA), the payment value identified at the time of the contract will be considered valid. b) According to Imam Muhammad (RA), the value just before the occurrence of the depression will be considered valid. Of these two cases, this verdict of Imam Muhammad (RA) is considered confirmed and more authentic.

In one of his statements pertaining to forfeiture and depression, Allama Shami (RA) also asserts that the two incidences are similar in nature: "" On the same page he adds,
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""

Allama Kasani (RA) has conducted a detailed analysis of the subject and concludes the following:

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188 " : : : : : " If anyone purchases an item with Fuloos and the Fuloos become worthless due to depression before the payment is made, then as per the opinion of Imam Abu Hanifa (RA), the sale contract will be nullified and the purchased item must be returned to the seller. In case the purchased item has been consumed or is no longer in the possession of the buyer then he will have to return an item of equivalent value or amount to the seller. Hazraat Sahibain think otherwise; the sale contract will not be voided in case of depression but the seller will have the right to either continue with the contract and receive payment in Fuloos or declare it null. As per Imam Hanifa (RA), Fuloos disqualifies as Saman in times of depression and their Samaniat is based upon public trust. Hence when the public loses confidence and discontinues their use, then their Samaniat is no longer valid. In this case, because a sales transaction is not possible in the absence of Saman, therefore the contract or transaction will be rendered null and void. The first rationale presented by Hazraat Sahibain in this context is that Fuloos falls in the category of Wajib Fe zzemma or owed by the debtor. Under this assumption, Fuloos cannot be considered entirely worthless but imperfect. Due to this, the seller will have the option to nullify the contract or continue with it by demanding an alternate mode of payment. Secondly, the debtor is also bound to return what he owes in

189 exact equivalent. However due to depression, he is unable to return this debt in the same currency since the Samaniat of this currency is now lost. The debtor is now bound to return his credit with an alternate item of equal value. The case will be similar with the credit of items which qualify as Misl which have been consumed or lost. The opinion of Hazraat Sahibain differs regarding the occasion which determines the value of the payment. According to Imam Abu Yousuf (RA) the occasion when the contract was made is the time when the value of Samaniat of Saman is ascertained. To the contrary Imam Muhammad (RA) believed that the time just before the depression is the occasion which should determine this value since this is when it is possible to accept the payments. If a loan has been given in Fuloos in use and these Fuloos are no longer accepted in the market after the depression, then as per the opinion of Imam Abu Hanifa (RA) and Imam Abu Yousuf (RA), the alternative of Fuloos need to be returned to the creditor. As per Imam Muhammad (RA), the debtor is required to return 1 something of equal value. The summary of the discussion done in Hashia Ibn-e-Abdeen and Fatawee Alamgeeria in this context is as follows: If depression occurs while sale is being made against dirhams having lesser silver then other contents or done with Fuloos for that matter, and the payment has not yet made to the seller (in case of credit sale), then the contract will be considered as null and void. It is mandatory for the buyer that he may now return the subject matter if it is still present. If not then he has to return its equivalent. However if the buyer doesnt have it in his possession anymore then nothing is due on him. This is the verdict of Imam Abu Hanifa. On the contrary as per Hazrat Sahibain, sale contract is not rendered void in cases of depression, as only the acceptance of payment is now difficult. However if the depression ends after sometime then this difficulty will evaporate. Henceforth the sale contract will not be considered voided. As per Imam Abu Yousuf (RA), the payment as per the value identified at the time of contract will be
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190 mandatory for the buyer and Imam Muhammad (RA) asserts that the value identified at the time just before depression should be considered. It is stated in Zakheera that Fatawee is based on the verdict of Imam Abu Yousuf (RA). Further it is stated in Muheet, Tatma and Haqaiq that Fatwa is based on the verdict of Imam Muhammad (RA) for the 1 convenience of public. Imam Abu Hanifas (RA) rule that an alternate item needs to be returned to the seller or Hazraat Sahibains (RA) directive that the value of the item needs to be returned is for the sale contract and for the purpose of reimbursement of credit in times of depression. As already discussed, there is a disagreement here about 2 the time of the determination of value. In one verdict presented at the end of a statement in Bada, Imam Muhammad (RA) and Imam Abu Hanifa are seen to concur on the issue of credit.

OPINION OF MALIKI AND SHAFII SCHOLARS

According to the Maliki and Shafii scholars, a sale contract is not deemed null or void in instances of depression but the buyer will be required to make the payment with the same coinage which has been discontinued from use. However according to a verdict of the Shafii School, the seller holds the right to either accept the same coins and complete the sale transactions or to reject and nullify the contract. As stated in Shrah Zarrqani: " -" If the Fuloos in which the payment was due are totally discontinued from use due to depression, then the payment needs to be made using an 3 alternative of the Fuloos identified before discontinuation. It is similarly stated in Hashia Dasooti: " -"
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191 If Fuloos, dirhams or dinars due for payment are nullified in event of depression, then the payment will have to be made in an alternative 1 medium of exchange. However, to the contrary, Makh Al-Jaleel states: If a specific currency is discontinued which was used in sale of goods or for lending purpose, then in this case no other form of currency will be used as an alternate (the same currency would be used rather). Similarly, Al-Mayar states: -"" Abu Al-Waleed Baji (RA) has given a Fatwa that the buyer must make the payment in the same coinage which was in use at the time of 2 contract. Al-Majmu, the renowned book of Fiqh Al-Shafia, states: " " Unless the trader specifies the unit of currency such as rupees or dollars etc, it is understood that the mentioned price will be in the currency identified in the region where the trading is taking place such as rupees in Karachi or pound sterling in London. Consequently, the seller will receive this currency even if it is later cancelled by the governor. This is 3 the established opinion. It is similarly mentioned in the Rozatal Talbain: " -"

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192 Even if the money given as credit is later cancelled by the governor, the creditor will receive the same form of money or coin which was extended as credit. This 1 point is established by Imam Shafii (RA). Al-Majmu also states: "" And Baghvi and Rafae prescribe another way whereby the seller either has the right to continue with the transaction with the same form of 2 money or cancel the contract. In the light of all these statements, it is hence concluded that the scholars of the Maliki and the Shafii Schools assert that in situations of depression, the seller has to accept the same form of money which has been discontinued from use. This rule applies equally to matters of sale or credit. This also confirms that the Shafii and Maliki scholars have different rules regarding forfeiture and depression.

OPINION OF HANBALI SCHOOL OF THOUGHT

The scholars of the Hanbali School agree that the value of the items in the contract must be returned to the seller. However there is a difference of opinion on how this should be accomplished: 1. The valid value will be the one just before the occurrence of the depression. This is asserted by Imam Muhammad (RA) and is a established opinion among these scholars. The value at the time of the contract will be the one considered, as asserted by Imam Abu Yousuf (RA). The valid value will be as per Waqt-e-Khusoomat or of the time when the case is presented to the judge.

2. 3.

According to Allama Ibn-e-Qadama: " :

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193 : -" If trade is discontinued in the market after the governor cancels the Fuloos or bits of dirhams, then this will be considered a falsification of the monetary unit and it will not be compulsory on the concerned party to accept them. In this case the debtor will have to pay the value of the credit which was identified at the time the debt was incurred regardless of whether he still possesses the money or has spent it. Imam Ahmad (RA) explains this in Daraham Mukssarah where according to him the value of the payment is determined as per the date or time when the debtor promised to return the credit. Whether the value of the credit has reduced or increased has no bearing upon this original value of credit. Abu Bakr states in Tambia that the time just before the depression is to be considered in determining the value of the credit as this is what the debtor would have returned if the depression had not occurred. Consequently, in case of depression, the value has to be determined as if 1 the real money is no longer in existence. " 2 " According to Allama Mardaovi: " ( : : 3 " All these statements confirm the opinion of Allama Ibn-e-Qadama and further emphasize the importance of time in determining the value of due payment.

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194

SUMMARY
To surmise, Imam Abu Hanifa (RA) considers Bay automatically nullified in cases of forfeiture and depression. This requires the buyer to return the purchased item, its equivalent, or its price to the seller if the possession of the item had been assumed before the payment was made. To the contrary, though the other Imams and a wide majority of scholars and jurists concur that this nullification would not occur automatically, there is a difference of opinion on determining the value of the due payment: 1. Imam Abu Yousuf (RA) asserts that in both cases, forfeiture and depression, the value of the payment as determined at the time of the contract should be honored. According to Imam Muhammad (RA), the time just before the forfeiture or depression is relevant in determining this value and his Fatwa is based on this opinion. The Hanafi scholars concur with this view and have established similar rules regarding forfeitures and depression. The remaining three Imams differ in opinion along the following lines: a) For the Maliki scholars, the time when the decision about the contract was made is relevant and the money of the same form is required to be returned as was used at the time of the contract. b) For the Shafia scholars, the time when payment was due is considered relevant in case of forfeiture. In case of depression, the same form of money is required to be returned which was in use at the time when the contract was prepared. c) The scholars of the Hanbali School consider the time just after the forfeiture as relevant in determining the value of the due payment. Out of the three different opinions regarding depression, the most accepted is the one which considers the time just before the depression as most relevant in determining the value of due payment.

2.

3.

The same details listed above apply to matter related to credit as well. It is only for Imam Abu Hanifa (RA) that the same form of money is required to be returned as was in use both in forfeiture and depression.

195

Phenomenon

Imams (RA) Imam Abu Hanifa Imam Malik Imam Shafi Hanbali and Imam Muhammad (RA) Imam Abu Yousuf (RA) Imam Abu Hanifa Malikia and Shafia

Verdict Sale Contract is nullified, form of money should be same for payment of loan Value of payment at the time of decision to be considered for either sale or credit. Value at the time when payment is due. Value just before forfeiture, as per Imam Muhammad (RA) the Seller will have the right to choose. Value at the time of contract, the seller will have the right to continue or cancel the contract. Contract is nullified; form should be same for payment of loan. Payment to be made in the same coinage established at the time of contract Value at the time of contract, also the seller will have the right to continue or cancel the contract Value just before depression, as per Imam Muhammad (RA) the Seller will have the right to chose

Forfeiture

Depression

Imam Abu Yousuf (RA) Hanbali and Imam Muhammad (RA)

An analysis of these opinions reveals that when an economy is in depression, the verdict of Imam Muhammad (RA) or Imam Abu Yousuf (RA) is more convenient and practical in determining the mode and value of payments against loan or sale contracts. This implies that the value of currency at the time of the contract will be considered relevant in determining the due amount after the occurrence of depression. This is seen as the just and fair way for the concerned parties to receive what is owed to them.

196

INFLATION
Before the Shariah stand on inflation is examined, it is first imperative to understand the definition, types, and root causes of inflation from the standpoint of contemporary economics. As for the definition of the term, economists have consistently remained in a near continual dispute over the issue The term inflation was first introduced by the neoclassical economists where according to them inflation occurred when due to sharp increase in money supply, the prices of goods and services also escalated sharply. Contemporary economists view this definition as one of the most significant. Some modern economists define 1 inflation as a constant and continuous rise in the prices of goods. Also, the definition of inflation in The Theory of Money and Credit does not confine the 2 phenomenon to the change in the value of money alone.

CHARACTERISTICS OF INFLATION
Regardless of differing opinions on various aspects of inflation , all economists concur with the following three of its characteristics: 1. 2. Increase in prices where inflation invariably results in an increase in the prices of goods and services. Increase in the circulation of money which occurs as a result of fiscal deficit. This is when the government starts to spend more than the tax revenue by borrowing from banks and other financial institutions against various forms of bonds. This situation leads to a surge in the credit money in the economy, ultimately increasing inflation. Inflation itself causes more inflation where once after taking root, it becomes its own breeding ground. This is a cyclic process and unless strategic timely measures are taken to contain it, its intensity continues to increase after each cycle.

3.

-------------------------------------------------------------------------------------------------------- The Theory of Money and Credit, page 272: "An increase in the quantity of money that is not offset by a corresponding increase in the need for money, so that a fall in the objective exchange value of money must occur."
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197

COMMON TYPES OF INFLATION

There are different types of inflation, each with its own level of intensity. Some common types of inflation are briefly discussed here: 1. Creeping Inflation: Creeping inflation is the lowest in intensity and hence not considered dangerous for the economy. It is generally less than 3% increase over the previous years value of money. Trotting Inflation: This type of inflation fluctuates at an annual rate of 3% to 6%. Running Inflation: Running inflation reflect a 10% annual increase in prices. Hyper Inflation: In situations of hyper inflation, the prices increase 20% to 30% or even more every month. Stagflation: Stagflation refers to an economic situation in which inflation and economic stagnation occur simultaneously and remain unchecked for a significant period of time. According to economists there are two main reasons for stagflation. Stagflation can result when an economy is slowed by an unfavorable supply shock such as an increase in oil prices in an oil importing country. This tends to raise prices while slowing the economy down by making production less profitable. This type of stagflation creates a policy dilemma since the efforts targeted to fight inflation actually worsen the stagflation and vice versa. The second type of stagflation is the result of inapt macroeconomic policies. This also creates inflation at the same time. For instance central banks can cause inflation by allowing excessive growth of the money supply and the government causes stagflation by the excessive regulation of the goods and labor markets. In combination, these factors result in stagflation.

2. 3. 4. 5.

THE REASONS FOR F LUCTUATION IN THE VALUE OF MONEY

The general notion related to fluctuation in the value of money is that it is caused by changes in money supply. However, there are certain other reasons this could also lead to this fluctuation: 1. Production of Goods: When the increase in the production of agricultural and industrial goods becomes relative to the amount of money in circulation, the prices of goods consequently reduce whereby

2.

3.

4.

5.

6.

7.

198 increasing the purchasing power of money. Similarly, any reduction in the supply of goods relative to money supply increases the prices of goods hence reducing the purchasing power of money. Increase in the Circulation of Money: The idea of an increase in the circulation of money should not be confused with an increase in money supply. Increase in the circulation of money means that people start to save less and spend more in any given economy. This increases the demand for goods and services even if the amount of money in an economy does not increase. Consequently, this increase in spending increases prices and reduces the value of money. Similarly, if the circulation of money is reduced where people prefer to hold on to their money rather than spend it, then the value of money increases eventually reducing the process of goods and services in the economy. Population: If the production of goods does not increase despite an increase in population, then the demand for goods and services increases consequently increasing prices and reducing the value of money in the economy. Fluctuation in Demand and Supply: It is possible for the demand and supply of commodities to fluctuate due to unforeseen circumstances such as wars or natural disasters. This has an abrupt negative impact on prices and affects the value of money accordingly. Federal Budget: As discussed earlier, an increase in government spending over the generated revenue results in a fiscal deficit in an economy which the government tries to remedy by borrowing from banks and financial institutions. This allows the government to spend more, increasing money circulation and leading to inflation. International Trade: Economies are likely to face trade deficits when imports exceed exports since this reduces the demand for local currency as compared to foreign reserves. This eventually leads to a reduction in the value of money and leads to inflation. Taxation: An increase in taxes on local and imported goods can lead to 1 an increase in prices, hence causing inflation.

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199

DEFLATION
As the term suggests, deflation is the opposite of inflation and occurs when the prices of goods and services reduce whereby increasing the value of money. In short, a reduction in money supply relative to the supply of goods eventually lowers prices. Deflation signifies a diminution of quantity of money which is not offset by a corresponding diminution of the demand for money so that an 1 increase in the objective exchange value of money must occur.

IMPLICATIONS OF FLUCTUATION IN THE VALUE OF MONEY

Fluctuations in the value of money affect all sectors in any given society to an extent where the phenomenon is considered to be the greatest predicament of conventional economic systems. Some repercussions of this fluctuation are discussed as follows:

EFFECT ON DIFFERENT F ORMS OF LOANS

Creditors in an economy probably suffer the most in times of inflation when there is a decrease in the value of money. For instance, if a person has loaned an interest free Rs. 1 million to his friend for a year, the value of this amount would be reduced equivalent to the percentage of inflation in the economy. Contrary to this, in times of deflation the creditor will benefit from this deal since the purchasing power of money would have increased. However this happens only in rare instances.

EFFECT ON WAGES OR SALARIES

Workers and employees are severely impacted during inflation because though their wages and salaries remain consistent throughout the year, the prices of goods and services rise steadily by a certain percentage causing financial loss to this salaried class. Just like creditors have the right to receive their loaned amounts back in full, it is the right of workers and employees to receive their due compensations. However in times of inflation, their wages do not complement the rise in the prices of goods and services. The negative impact of the

The Theory of Money and Credit, page 272

200 fluctuation in the value of money is not limited to just salaried workers and creditors but have adverse consequences for industrialists, farmers, production of goods, distribution and circulation of money, on investment and employment generation. There are certain groups in society such as industrialists and traders who actually benefit from inflation because the increase in the price of goods boosts their profits. Inflation also directly impacts the demand for goods because people increase their spending, fearing even higher prices in the future. Hence they prefer to spend at the moment and avail the present day prices rather than save and spend more in future. This increase in the demand of goods accelerates production encouraging investors and industrialists to invest more in order to expand their production capacities. Though this tends to positively affect employment, it is a negligible advantage because inflation produces income disparity where the industrialist and businessmen can adjust their profits by adjusting the prices of their goods as and when desired. This creates an imbalance in the distribution of money supply in the economy.

INFLATION AND DEFLATION ACCORDING TO SHARIAH

The Arabic word for inflation is Rakhs ( )or Tazakhum ( )while for deflation the words Ghala ( )or Inkimash ( )arabic are used. The words Rakhs and Ghala have been used in jurisprudence literature since antiquity while Tazakhum and Insmash are more commonly seen in recent literature. Rakhs means reduction in price referring to depreciation of money or a reduction in its value. Similarly Ghala means increase in price or the fact that money has become more expensive and has increased in value. The literal meaning of the word Tazakhum is also expansion where contextually it symbolizes an expansion in the supply of money. Literally, Inkimash means contraction referring to a contraction in the supply of money. In Shariah there are two verdicts related to the increase or decrease in purchasing power or the value of money. The first verdict is held by the majority of scholars and Imams while the second opinion is only held by Imam Abu Yousuf (RA).

OPINION OF SCHOLARS ON THE EFFECT OF INFLATION ON TRADE CONTRACTS

Maliki, Shafii, Hanbali and Hanafi scholars concur on the point that fluctuation in the value of money does not affect the amount of payment due on the buyer at

201 the time of contract. Therefore any changes in the value of money which occur later will not be considered because there is no consideration for economic inflation and deflation in Shariah. As per the viewpoint of the majority of scholars, the payment of credit sales, loans and wages are not to be compensated on the value scale. For instance, even if at the time of a certain contract the value of 100 Fuloos was equal to 10 dirham and at the time of payment it reduced to 5 dirhams or vice versa, only the 100 Fuloos will be returned without any increase or decrease in this initial principal amount. In other words, the payment will not be adjusted or discounted to make it equivalent to the current day value scale. As stated in Shrah Al-Zarqani: " " If the Fuloos which are due are rendered as Matrook Al-Tamal or obsolete, then this rule already incorporates the fluctuation of the value of Fuloos. Here the debtor or buyer will have to pay the exact amount, even if at the time of contract the value of Fuloos was equal to one thousand dirhams and later it was reduced to one hundred dirhams only. 1 This is because Fuloos are among Misliat (). According to Hashia Dasooti: " " If the Fuloos which are due for the payment of loan, sale or dowry or which were kept as Wadeat (deposit) have either been spent or invested in Mudarbat by the keeper and are later rendered entirely obsolete, then the payer is required to pay the exact equivalent of the amount even if a

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202 dirham was exchanged with sixteen Fuloos earlier and are later 1 exchanged for one thousand. It is further stated in Makh Al-Jaleel: " -" If you loaned Fuloos (500 in quantity for e.g.) instead of dirham and if at that time one dirham was equal to 100 Fuloos and when the payment was due one dirham became equal to 200 Fuloos, then you will receive the same amount of Fuloos from the debtor. Other than this he owes 2 nothing to you. According to a statement in Al-Mayar, in cases of fluctuation of money the same amount of money will be due later as was borrowed rather than the value of the currency at the time of return: " : - -" As per Allama Seoti (RA): " -" If Fuloos are exchanged in lieu of a Ratl then the buyer will get the same Ratl despite the value decrease or increase. Therefore if gold, silver or Fuloos are exchanged against one thousand units (of a currency) and the price later changes, then as per a statement from Al-Roza the buyer will still get the same one thousand units and the fluctuation of value will 3 not be taken into account.

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203 According to Allama Ibn-e-Hajr: -"" In case of Misli, Misl should be returned, as it is not allowed to replace the Misl with its value as this is more fair and just for the concerned 1 party. As per the opinion of Allama Ibn-e-Qadama: " -" When the price reduces, then it is not a problem. Whether the reduction is less or more, as there isnt something new in it, only the rate has been 2 changed, it is just like increase or decrease in price of wheat . It is stated in Shrah Al-Majla: " -" If a person takes a loan in legally identified Fuloos, say 1000 Fuloos, and then the economy suffers depression, then the debtor will pay equal to the amount he borrowed. Despite the Fuloos being rendered obsolete later, he will not be liable for their value. This rule applies to all measurable or weighable items. As already stated, the replacement of these items should be with items of equal value and the impact of depression or fluctuation will be taken into consideration . This is the 3 verdict of Imam Abu Hanifa (RA).

VERDICT OF IMAM A BU YOUSUFS (RA) SCHOOL OF THOUGHT:

According to Imam Abu Yousuf (RA), in cases of fluctuation in the value of money the buyer or debtor has to make the payment as was valued at the time when the
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204 contract was made. In this school of thought, all the Fatwas and practices are derived from this verdict. This verdict is contradictory to the previously discussed viewpoint. According to Allama Shami (RA): : " : : : " If the value of Fuloos fluctuates before the seller takes possession of goods, then Imam Abu Yousuf (RA) had previously agreed with Imam Abu Hanifa (RA) that Fuloos in the same amount need to be considered for payment. Imam Abu Yousuf (RA) later reconsidered this viewpoint and declared that it would be compulsory to make the payment in dirhams as per their value at the time of the sale contract. In case of credit, the time when the credit was given needs to be taken into account in order to calculate this value. This reveals two verdicts for inflation and deflation; the first demanded that payment be exactly equivalent of the principal amount while the other, on which the Fatwa is based, agrees on 1 the adjustment as per the value of currency at the time of the contract. In the opinion of Allama Ibn-e-Abedeen: " : : : -" The sale contract will not be nullified in case the value of Fuloos fluctuate; the buyer will not have the right to nullify the contract and will be required to make the payment as per the value determined at the time of contract. In the same context it is stated in Fatah Al-Qadeer, in Bazzazia, and a reference is made from Al-Mantaqi, that if the value of

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205 Fuloos is increased or decreased then as per the first and third Imam, the buyer will only pay the same Fuloos whose value has changed. However later the third Imam (Abu Yousuf RE) said that the buyer will have to make the payment in dirhams as per the value valid at the time of contract, and Fatwa is also based on this opinion. Similarly it is stated in Zakhira and Khulasa as well as in a reference from Mantaqi, also quoted and explained by our Sheikh in his Behr ( ), that in many of the authentic books the same verdict (of Imam Abu Yousuf (RA)) has been the basis of Fatwa. Therefore for Fatwa and Qaza the same verdict 1 should be trusted. As stated in Al-Uqood Duriryia: : : " -" If the value of Fuloos has increased or decreased, then as per a verdict the seller will get the same Fuloos i.e. buyer will pay the Misl (exact alternate). According to another verdict the payment will be based on the value at the time of contract or the time when the loan is given, and 2 the same has been used for formulating the Fatwa. Allama Ibn-e-Abedeen has referred to the statement of Allama Gazi (RA) that the Fatwa is based on the verdict of Abu Yousuf (RA). Allama Ghazi states: " : -" I (i.e. Imam Gazi RA) have gone through lots of books written by my mentors. I have never seen anyone other than Qazi Imam (RA) to have given any Fatwa based on the verdict of Imam Abu Hanifa. As far as the verdict of Imam Abu Yousuf (RA) is concerned, a number of authentic and

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206 noble books contain Fatwas based on it. Henceforth the verdict of Imam 1 Abu Yousuf (RA) should be trusted. The details and rulings on depression, inflation, and deflation which have so far been discussed are related to Saman-e-Urfi or fiat currency and not to Saman-eKhilqi or gold and silver. This is because the Samaniat of gold and silver never fluctuates with inflation or deflation nor does it disintegrate with depression hence causing no loss to the trading parties. In case of credit and sale contracts in which gold or silver are used as the medium of exchange, the Misl needs to be returned to the buyer or lender and its replacement with any other item of equal value is of no significance. This is contrary to Saman-e-Istelahi and Urfi where depression, inflation and deflation have noticeable impact on their value which results in loss to the trading parties. For this reason, Imam Abu Yousuf (RA), holds the said verdict in order to protect the interest of the trading parties. The Hanafi Fatwa is also based on this verdict for the same reason and is close to the temperament of the Shariah where the primary concern is the protection of the rights of the trading parties against potential loss.

CORRECT ELABORATION OF THE VERDICT OF IMAM A BU YOUSUF (RA):

In the Hanafi School, the verdict of Imam Abu Yousuf (RA) is most revered where in cases of fluctuation in the value of Fuloos, the Misl will not be returned but the payment will be equal to the value agreed at the time of the contract. This does not imply that the same rule is also valid for currency notes in which case in times of inflation, the payment of a loan would be adjusted as per the reduction or increase in the value of the paper currency. For instance, Omar loans Zaid Rs. 1,000 for one year. At the time of loan repayment the value of Rs. 1,000 reduces by a certain amount due to inflation. Now Omar might demand Zaid to compensate for the lost value by asking for an additional Rs. 100 on top of Rs. 1,000 since Omar calculates the reduction to be about 10% over the past year. If this had been allowed, it would open the door for Riba in transactions. Since it is prohibited, it becomes even more critical to analyze how paper currency differs from Fuloos in context of the viewpoint of Imam Abu Yousuf (RA). The first point that needs to be clarified is that Fuloos, which was used in ancient times, are not the exact equivalent of paper currency even though the two are
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207 similar. Hence the Fatwa of Imam Abu Yousuf (RA) which refers to Fuloos cannot be applied per se to the paper currency in use today. This is because the value of Fuloos in earlier times was not only linked with dirham and dinar or silver and gold but were also used as loose change for silver and gold coins. However this value of Fals was not based on its intrinsic value but was the value ascribed to it; it was Saman-e-Istelahi. For this reason this value tended to fluctuate over time. For instance if one dirham was exchanged for ten Fuloos at a certain time, it was probably exchanged for twenty Fals after a year. Hence the value of Fals was subject to the forces of demand and supply as well. Given this fluctuation, the debtor or buyer was required to make his payments as the per the value of Fuloos equivalent in dinar and dirhams at the time of the contract. For instance, when a person took a loan of 100 Fuloos, they were equal to 10 dirham. After the period of one year, at the time of loan repayment, this initial value was reduced to 5 dirhams. As per the verdict of Imam Abu Hanifa and Fatwa of the Hanafi School, the debtor has to return 200 Fuloos as their value would be equal to 10 dirhams. However the paper currency in use today is not directly related to or associated with Saman-e-Khilqi or gold and silver nor is it considered loose change for dirham or dinar. Paper currency is Saman in itself and hence differs from Fuloos in the context of this discussion. It is also not possible to calculate their value exactly at a given point in time. Currency notes in use today have no fixed scale to determine their value. The fact is that this value is assessed and estimated through power to purchase goods and services which is not a credible approach from the Shariah point of view. In short, the verdict of Imam Abu Yousuf (RA) applies to Fuloos used in ancient times which are not the exact equivalent of currency notes. For this reason, the ruling is not applicable on currency notes and the payment against a loan will not be calculated as per their initial value but Misl or exact amount will be paid, as acknowledged by the majority of jurists. Therefore in cases of inflation or deflation, Imam Abu Yousufs (RA) verdict cannot be applied to adjust the amount of currency notes to make the value equivalent to the principal amount at the 1 time of return. Before further analyzing this subject in the light of Shariah and before attempting to understand Shariah rulings regarding the payments of

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208 wages and loans in times of inflation and deflation, it is important to discuss how the value of paper currency is calculated today.

PRICE INDEX
It is a common and understood practice that the value of goods and services is measured through a monetary unit. For instance, a car can be worth Rs. 500,000.00 and a 40 kg bag of wheat could be worth Rs. 800. The value of money can similarly be evaluated by reversing this equation or through its capacity or power to purchase goods and services. Based on this rule, economists have devised a system to measure or calculate the ability of currency to purchase the most commonly used goods and services in a country. The price index of this set of items is tracked periodically and compared over a base year, hence the use of the term index. Price index is also referred to as the index number and is currently the most common method for measuring the value of a monetary unit.

PROCESS OF CALCULATING PRICE INDEX

No currency has any value unless it exhibits the capacity to purchase goods and services in times of need. This implies that currency notes have both a face value and a real value. The face value of a currency note is the denomination printed on it and this remains unchanged. Contrary to this, the real value is likely to change over time with changes in its capacity to purchase a set of goods and services, referred to as basket of goods in contemporary economics. For instance Zaid has a disposable income of Rs. 10,000 per month. Here Rs. 10,000 is the face value of this income whereas the real value would be assessed by what Zaid is able to purchase with this amount at a certain point in time. For instance Zaid could use this amount to purchase the following goods and services: 40 kg wheat 20 m cloth 20 kg mutton 5 kg pulses 5 kg sugar 500 g tea Rent of the house Educational expenses of his two sons

209 Medical expenses Transportation expenses

The above is an example of basket of goods and services as this is what Zaid could buy his with Rs. 10,000. It is important to understand here that each item in the basket of goods and services differs by virtue of importance. For instance wheat is more important than cloth and cloth is more important than transportation expense. There are always some items which are essential for survival while others could be done without. Hence an increase in the price of sugar is less likely to affect ones life versus an increase in the price of wheat. For this reason economists use the weighted average for each item when calculating their impact on the value of money. These weights are also referred to as the weights of commodity and the index is termed as weighted index number. Contrary to this, if different items are treated equally then the index is called simple index number. Following is the process for calculating the index: 1. 2. 3. A list of items most commonly used by the public is prepared. Depending on its importance, each item is assigned a weighted average. A base year is selected with the following criterion for selection: a) No unusual economic event should have occurred in that year. b) Inflation should have remained within acceptable range. c) The country should not have faced any famine or war. d) There should not have been any unusual excess or shortage in production. Another year to be compared with the base year is selected. Percentage change in the prices of individual items is calculated between the base year and the comparison year. Each percentage change is discounted by the weighted average of each item. The result of each item is then added to calculate the price change of the basket of goods and services.

4. 5. 6. 7.

210

Consider the following example:

Items Weight Price in Base Year (2007) 40 kg = Rs. 700 5 kg = Rs. 450 5 m = Rs. 800 5 kg = Rs. 120 8 kg = Rs. 650 Rs. 2000 Rs. 3000 Price in Comparison Year (2009) 40 kg = Rs. 800 5 kg= Rs. 600 5 m = Rs. 1000 5 kg = Rs. 200 8 kg = Rs. 800 Rs. 2500 Rs. 4000 %-Change Result = Weight x (%-Change) 3.3% 4.0% 3.8% 5.3% 2.8% 4.5% 4.0%

Wheat Pulses Cloth Sugar Meat Education Expense Travel Expense

23% 12% 15% 8% 12% 18% 12%

14.2% 33% 25% 66% 23% 25% 33%

In the ave example, the first column lists the items to be included in the basket of goods and services. The second column lists the percentage contribution toward each item from the salary. This is known as the weight and its total is 100%. The third and fourth column list the prices of these items in the base year and in the comparison year respectively. The fifth column lists the percentage change which occurred during that period. The sixth column multiplies the percentage change with the weight of the respective item. The summation at the bottom of the sixth column (27.5%) shows the average change in the value of the basket of goods and services over the period of 2007 to 2009.

The resulting 27.5% indicates that the basket of goods and services which was supposedly obtainable at a price of Rs. 100 in the year 2007 was later available in 2009 for Rs. 127.5. In other words the value of currency decreased by 27.5% over

211 this period. For instance, a person earned Rs. 15,000 per month in 2007. In 2009 the face value of his salary increased to Rs. 18,000 per month. However in real terms, his salary would be calculated as follows:
Year Face Value Change in Value 1.0 1.27 Real Value = Face Value / Change in Value Rs. 15,000 Rs. 14,173

2007 2009

Rs. 15,000 Rs. 18,000

In other words, his Rs. 18,000 are equal to Rs. 14,173 in real terms with reference to his base value of Rs. 15,000 in 2007. This makes a very strong case for the advocates of interest based loans who assert that the returned amount should be adjusted on the positive side so that it is equivalent to the real value of the principal amount. For instance, Omar gives a loan of Rs. 15,000 in 2007 to Zaid for two years. The real value of this loan amounts to Rs. 19,050 (Rs. 15,000 x 1.27) two years later. The question is whether this is permissible from viewpoint of Shariah.

SELECTION OF ITEMS FOR THE INDEX:

It is understood that since the needs and requirements of individuals vary over time, therefore the basket of goods and services will also differ at different times. However, for the calculation of the price index, the basket of goods and services is assumed to be fixed and valid for the majority of people. Hence it is likely that this list of items might contain certain goods and services which may not be valid for all individuals because it is not possible to precisely address everyones needs all the time. Also due to technological advancement or the introduction of substitute goods in the market, the given list of items may become obsolete with time and may need to be revised. Given all these reasons, it can be assumed that the list of items is based on a guesswork of the optimal needs of individuals at a certain time.

ESTIMATION OF WEIGHT OF ITEMS:

The weight of the items included on the list is also the result of estimates and assumptions and is hence likely to differ between different individuals. For instance, educational expenses may be more important for a student than for a person who has already completed his education. Similarly, bus fares will be

212 irrelevant for a person who uses a bike or car for transportation. On the same note, some people prefer to eat rice on a regular basis while others are more inclined towards wheat. This establishes the fact that the weight calculation of each item is also based on an average or the best possible estimate.

ESTIMATION OF PRICES OF SELECTED ITEMS:

The prices of item are likely to fluctuate over time and between various geographical locations. Therefore in calculating the price index of a country, the average prices of goods and services is also derived from estimates and assumptions. The above listed three points illustrate the level of guesswork and assumptions employed in the calculation of the price index. Even when utmost care is taken to calculate as precisely as possible, there still remains an inevitable chance for error. However Shariah demands an absolutely accurate calculation of value or quantity which is not possible in price indexing, as illustrated by the above explanations. This is the major reason why the use of price index to adjust or discount the amounts of loan payments and credits is not permissible from the 1 Shariah point of view. A declaration in this context was given in a conference of st th the Islamic Jurisprudence Academy, Jeddah in Kuwait from 1 to 6 Jamadi-ulth th Auola, 5 to 10 December 1988. The declaration stated: " : ) ( " For the payments of loan or credit (in currency notes) Misl will be considered not its value, as Misl is taken into account while payments of loan and credit. Therefore payment of loan or credit cannot be linked to 2 price index, for that matter.

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213

LINKING DEBT PAYMENTS AND WAGES TO THE PRICE INDEXATION SYSTEM

There are provisions in Shariah for linking wages with price indexation. However there are no such provisions for linking debt payments with price index in Shariah. A summarized discussion on both topics is as follows:

A) LINKING DEBT PAYMENTS WITH INDEXATION SYSTEM

The opinion of Shariah in this context is that linking debts to indexation system is unfair and not totally compatible with Shariah principles. Hence the unanimously agreed Shariah ruling here is that the debt payments be in Misl or equivalent in value to the principal amount. People who adjust their debt payments according to the indexation system hold the same opinion. This makes it pivotal to understand the definition of Misl within the context of the subject otherwise the argument of adjustment as per the real value would seem justified. The word Misl is defined literally and terminologically. The literal meaning of the word is equality of price and terminologically it means that the payment must be equal in quantity, volume, weight or length. In other words, the payment must be equal to whatever was given as debt irrespective of its market price. When the subject is analyzed in the light of Quran and Sunnah, it is evident that the terminological definition of Misl needs to be considered in cases of debt payment. This means that the quantity of the items must be equal rather than their price. This is justified as follows: 1. A person has borrowed 1 kg wheat the value of which is Rs. 15 at the time of borrowing. At the time of payment, he will return the 1 kg wheat to the lender regardless of whether the value of wheat reduced to Rs. 10 per kg or increased to Rs. 20 per kg. Jurisprudents and scholars unanimously agree on this point and do not recommend increasing or decreasing the quantity of this wheat according to its price at the time of return. All jurisprudents agree that the condition of equality or Misl in debt payment is to evade Riba or interest. Prophet Muhammad (SAW) has clearly stated this requirement in a Hadith related to Riba Al-Fadl:

2.

214 : : " : -" Hazrat Sayed Khadri (RAA) has reported that at the time of Prophet (SAW) dates of different varieties were brought to us and we used to sell two dates of low quality with one good quality date. When Prophet (SAW) learnt about it he said that dont sell two inferior dates with superior ones, dont sell more low quality wheat against less high quality 1 wheat, and dont sell one dirham for two dirhams. This Hadith confirms that Hazrat Muhammad (SAW) established the proper method to be equality of items in terms of quantity such as weight, volume and length rather than their equality in price. Although the Prophet (SAW) was well aware that the price of two low quality dates was equal to the price of one high quality date, he still did not allow this transaction but insisted on equality of quantity. : " : : : " Hazrat Sayed Khadri and Hazrat Abu Huraira (RAA) narrate a tradition that Hazrat Muhammad (SAW) sent a scholar to Khaibar. On his return he presented a Janeeb or a high quality date to Prophet (SAW) on which the Prophet (SAW) asked whether all the dates in Khaibar were similar. The scholar replied that we exchange Saa (a unit of measurement) with two Saa and two Saa with three Saa. Upon hearing this the Prophet (SAW) instructed to refrain from such a practice and to sell the dates of inferior types for dirhams and then purchase Janeeb with those dirhams.
2

This Hadith clearly illustrates that the equality required in the exchange of items which qualify for Riba refers to the quantity of the items and not their price. For
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215 this reason the exchange of Janeeb, higher priced, high quality dates, was not permitted by the Prophet (SAW) for a greater quantity of less inferior dates. Rather, an equality of weight is emphasized in the exchange or return of debt transaction. A number of other traditions testifying to this are narrated below which further emphasize the importance of equal quantity in the exchange of items upon which the rules of Riba are applicable: : :" -" Hazrat Abadah Bin Samat (RAA) has narrated a tradition that Prophet (SAW) stated: Sell gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates and salt for salt, on the spot (in equal quantities). If the type of item on both side is different then the quantity 1 can vary but the transaction should still be on the spot. : :" -" Hazrat Abu Huraira (RAA) has reported a tradition where Prophet Muhammad (SAW) stated: Sell gold for gold by weight, and sell silver for silver by weight, anyone who gives or demands any excess or increase 2 would be indulding in Riba or interest. :" -" Hazrat Ibadah Bin Samat (RAA) has narrated a tradition that Hazrat Muhammad (SAW) stated: Sell gold for gold whether in the form of bits, bars or coins; and silver for silver whether in the form of bits, bars or coins; and two Madi (48.87 kg) wheat for two Madi wheat, two Madi barley for two Madi barley, and two Madi dates for two Madi dates and

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216 two Madi salt for two Madi salt, and any excess offered or demanded 1 will be Riba or interest. Another Hadith in this context specifically discusses equality in the payments of loan, debt and credit: :" ! : : " Hazrat Abdullah Bin Omar (RAA) stated: I used to sell camels at a place called Baqi. I often used to finalize the deal in dinars and take dirhams from the seller and sometimes vice versa. In other words I used to accept dirhams in lieu of dinars and sometime dinars instead of dirhams. Also at the time of making payments, I often paid dirhams for dirhams or dirhams for dinars. Once I went to the Prophet (SAW) when he was in the house of Hafsa (RAA). I asked that I sell camels at the place of Baqi and explained him how I do that (as explained above). On this Prophet (SAW) replied that there is no harm in doing so only if you exchange as per the rate valid on the same day and you and the buyer must not separate unless both parties have made complete payment (no credit is incurred 2 by any party). It is clear from this Hadith that the Prophet Muhammad (SAW) allowed Hazrat Abdullah bin Omar (RAA) to finalize the deal in dinars but accept dirhams equal to the value of the dinars at the time of payment and vice versa. Here the exchange rate between the dirham and the dinar at the time of payment will be considered rather than the exchange rate at the time of contract. For instance, Omar sells an item to Zaid for one dinar payable after a week. At the time of contract a dinar was equal to 10 dirhams but at the time of payment a dinar is equal to 11 dirhams. Hence, if at the time payment, Zaid decides to pay in dirhams instead of dinars, he will be required to pay Omar 11 dirhams not 10.

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217 In the light of Quran and Sunnah, all jurists agree that for the payment of loans or credit, an accurate equality in quantity, weight, volume, or length is mandatory and it is not permitted to use approximation or guesswork in determining the payment amount. For instance, it is impermissible in Shariah for a person takes a loan of one Saa of wheat or any other item upon which the rules of Riba are applicable on the condition that the payment of the loan will be without proper weighing but will be based on an estimation of quantity. For the same reason Prophet Muhammad (SAW) has prohibited Bay Muzabana or the sale of harvested dates with those which are still on the trees. This is because the quantity of the latter is not known and it would take guesswork and estimation to establish it. Hence the Prophet (SAW) has declared all such deals illegitimate which are based on estimation and in which margins for errors exist. In case of payment of loans in currency notes where value is linked with the price index, assumptions or guesswork will naturally be employed for determining the value of the loan since the calculation of the price index involves guesswork, supposition, and speculations. Some examples of this are discussed below:

B) LINKING WAGES WITH PRICE INDEX

Linking wages with the price index depends upon whether or not the wages are in the form of debt such as service or labor acquired before the payment. If the wages are in the form of debt, then the same rule of loans or credit as discussed earlier will be applied. There is the possibility of the following two scenarios in this case: 1 Scenario: The wages are paid in currency notes with the condition that at the beginning of every fiscal year, the monthly salary will be revised as per the rate of inflation measured according to the CPI or Consumer Price Index, the most commonly used measure of inflation. For instance the minimum wage is agreed at Rs. 6,000 per month at the beginning of the year with the clause that it will be revised according to the percentage change in the price index at the beginning of the next fiscal year. In this case the employee will be bound to accept these wages for the entire year and wait for the beginning of the next year before this salary is revised as per the change in the price index. In case the change in the price index at the time of salary revision is 10%, then the salary will be also be revised to reflect an increase of 10% and be adjusted to Rs. 6,600.
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218 This is the norm in various countries including Pakistan even though a lot of companies choose not to abide by the principle. This is also permissible in Shariah. In this scenario, the employee and employer mutually agree on a revision of salary on a six month or annual basis and neither the employee nor the employer can predict the change at the end of the six months or year. However, they both consent to follow the principle of wage adjustment as decided. Here the problem of uncertainty is resolved since both parties mutually agree to accept the outcome as per an independent measure of change in value. This is why there is no prohibition on this by Shariah. 2 Scenario: In the second scenario, the employer and the employee agree on a salary payable in currency notes on the condition that at the termination of employment or contract, the employee will adjust his salary on the positive side as per the percentage increase in the price index and the adjusted amount will be equivalent to the initially decided salary in terms of real value. For instance, Omar hires Zaid for a month on a salary of Rs. 5,000. It is agreed at this time that this amount would be adjusted after a month according to the percentage change in the price index. After a month, there is a 2% change in the price index hence the salary is increased to Rs. 5,100 where the additional Rs. 100.00 or 2% is at par with the percentage change in the price index as initially decided. Here the promised time of salary payment was after a month. If Omar fails to pay Zaid as promised and delays payment to a later date, then there will not be any further adjustments to this amount as this money has now become a debt which Omar owes to Zaid. No further adjustments on such amounts are permitted regardless of delays in payment. The amount will remain fixed at Rs. 5,100 even if Omar pays Zaid after a year and the price index at this time further increases in percentage value. According to Mufti Taqi Usmani, this is also the Shariah point of view only if both parties are aware of the technicalities involved in the calculation of the price index in detail so as to eliminate any chance of confusion or conflict at the time of wage or loan payment. Therefore if both parties knowingly agree that the actual decided wage of Rs. 5,000 will be adjusted as per the percentage change in the price index at the end of the month or termination of contract period, then Shariah has no objection to it.
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219 It is not allowed in Shariah for an employer to pay wages at some other agreed time rather than the end of the term on the condition that the amount will be adjusted as per changes in the price Index at the later date. For instance, Zaid agrees to work for Omar for one month but Omar promises to pay him after two months. At the time of payment if Omar promises to adjust the due salary as per changes in the price index over the two month period, it will not be permissible according to Shariah. This is because at the end of the term period of one month, the due amount becomes Omars liability which he is now indebted to pay to 1 Zaid. As previously discussed in detail, in cases of debt repayment only the principal amount must be returned. This would not be the case if Zaids salary is adjusted over the two month period rather than for the one month of actual work. The alternative here would be for both parties to mutually agree on the payment of the salary adjusted as per the price index at the time of the termination of the contract. This is the permitted stand as per Shariah rulings.

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220

CHAPTER-8: CREDIT MONEY

The Arabic word for credit is letiman ( ) which means to trust or to place ones faith. The terminological meaning of the word in the Encyclopedia Britannica is: Transaction between two parties in which one (the creditor or lender) supplies money, goods, services or securities in return for a promised 1 future payment by the other (the debtor or borrower) Credit can hence be described as present right to a future payment. jurisprudence the word is defined as follows: In

-"" Credit is defined as a provision of being freed from present payment in lieu of future payment (of money, goods or services) on the basis of trust 2 and faith among parties. In the definition of credit appears as follows, the meaning of which is similar to the preceding definition:
3

-""

Urdu books define credit in the following words: It is the trust, faith, belief or the confidence that the creditor has in the debtor which allows him to lend or provide goods on credit. The creditor hence believes that at the end of an agreed period, the debtor will either
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221 return the credited goods or payment equivalent to the value of the goods.

CREDIT MONEY
In jurisprudence the term credit money is defined as follows: " -" They are legalized form of documented Sukuk of limited type, which guarantees that after a defined period a specific amount of money will be given to the holder of these documents. And the amount which is due should be transferable via Tazheer (endorsement) or Munawala (to 1 handover). According to Dr. Muhammad Zaki Shafai: " " for this reason they are termed as credit money since credit is a promise to pay a specific amount of money. Hence a payment (equal to its value) is due on the government or banks for the holder of credit money which is accepted on the basis of confidence which exists among 2 the parties. To surmise, credit is the form of debt incurred during the trade of goods and services and the documented form of promise to pay is termed as credit money. Basic Characteristics As derived from all the above definitions, credit money has four basic characteristics: 1. The exchange of credit money is done via endorsement.

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2. 3. 4.

222 Credit money represents a specific amount of money. Credit money acts as a guarantee for payment. Credit money can only be used for the said purpose; it is limited in use and has legal value.

Selected quotes from various references highlight the types of credit money: According to Al-Jaed: -" : : : :" Hundi, bonds and check are three forms of credit money Dr. A. N. Agarwal states: we shall now discuss the chief forms of credit instruments: promissory notes, bank notes and currency notes, bill of exchange check bank 2 draft. Hasan Najfee includes shares and different forms of certificates on the list of items which qualify as credit money: " 3 -" Ibrahim Saleh Omar includes currency notes on the list of credit money: " 4 -" Sheikh Mubarak Ali defines credit money as check, bill of exchange, promissory 5 note and bank draft.
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223 Though various authors categorize currency notes as credit money, whereas currency notes itself qualifies as Saman. For this reason the legal status of currency notes differ than that of credit money. It can hence be concluded that the most prevalent forms of credit money are: 1. 2. 3. 4. 5. Bill of exchange Bonds Check Promissory note Draft

The present discussion will focus on the historical evolution, benefits, and the authenticated usage of different forms of credit money. The next chapter will discuss the subtypes of these forms in the light of Shariah and the opinions of jurisprudents.

EVOLUTION OF CREDIT MONEY

All the modern forms of credit money such as the bill of exchange, check, etc. are a direct outcome of the commercial banking system. Not only has credit money evolved with the banking system but continues to expand into new avenues. Some economists believe that the present day bill of exchange was first introduced in Quroon-e-Wusta or the middle centuries. By popular consensus it th was introduced in the 18 century as a tool of money transfer between countries. The term bill of exchange was used to refer to the exchange of currencies of th different origins. It was later in the 19 century that commercial banks started to introduce the system of checks. Nevertheless, the roots of credit money go a long way down in world economic history. Jurisprudents have discussed the rulings on Suftaja and Hawala in great detail in jurisprudence literature. This implies that various types of credit money which later emerged in European societies were evolved forms of the modes of exchange employed earlier by the Muslim traders. This fact is confirmed by various historians like Joseph Schacht, Dr. Heflin and Robeson. According to Joseph Schacht the word chaqae is a French word which is a morphed versio n of Hawala and that it is highly probable that the actual function of a check is similar to Suk as well. Robison states that the Arabs were expert traders who gave

224 trading its formal structure by elaborating Kifalah, establishing the Bait-ul-Mal for 1 the poor, and popularizing Suftaja. The companions of the Prophet (SAW) have also commented on the use of Sukuk indicating that the tool was present in Arab during this time as well where it was primarily used for the trade of edible items. However during the time of the Prophet (SAW) even though such trade was not permitted until the edible items came into the possession of the seller, the violation of the principle was common. : " : : : : " Imam Malik (RA) has stated: During the era of Marwan Bin Al-Hakam people started to use Sukuk for edible items and the trading agreements were done before possession of the items was acquired. Therefore Zaid Bin Sabit (RA) along with another one of Prophets (SAW) companion (RA) went to Marwan Bin Al-Hukm and asked Are you allowing Riba as legitimate? Marwan Bin Al-Hakam said God forbid, how is that? they replied These are Sukuk which are traded before people acquire the possession (of the items being traded). Marwan Bin Al-Hakam ordered his guards to confiscate the Sukuk and return the subject matters to the real owners. In this context, Hazrat Sheikh Ul-Hadith states: Sukuk is the plural of Suk, which means a paper document on which the amount of payment is mentioned. Here it qualifies as a certificate

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225 which is issued by the ruler as ration card so that proper shares are 1 allocated to each individual. This indicates that various forms of credit money had been in use in early times and the modern versions of the concept are based on these earlier models.

PROS OF CREDIT MONEY

There are certain benefits of credit money which cannot be denied. These are despite the disadvantages associated with credit money at the macroeconomic level.

ELIMINATES THE REQUIREMENT TO CARRY CASH:

The use of credit money frees the user from the worry of carrying cash. This is particularly advantageous in business transactions which commonly require transfers of large amounts of money and hence is also a safeguard against theft and accidental loss. The bill of exchange and bank check serve this specific purpose.

INSTRUMENT OF CREDIT:
The use of credit money helps to foster a relationship of confidence and trust between the trading parties where each facilitates the other over advance or future payments. This stance has always been critical to businesses since earliest times.

BENEFITS OF CHECKS:
1. Checks are one of the most convenient and common form of credit money in which any large or small amount may be facilitated. Checks are an easy to use, safe and efficient way to make payments especially in the more developed countries where these are used instead of cash in routine and business money transactions. Checks are a secure way to make payments particularly when they are crossed in which case the money can only be transferred into the account of the specified person on the check. This makes it very secure

2.

-------------- -------------- ) ( ( )

3.

226 against accidental loss of theft. Checks also serve the legal purpose of acting as an official receipt of payment. Checks make it easy to process large sums of money which would otherwise involve counting and storing substantial amounts of cash. This helps to make business transactions faster and more efficient.

BENEFITS OF BILLS OF EXCHANGE

1. 2. Bills of exchange are highly convenient for international transactions. Bills of exchange allow trading parties from different countries to make advance or future payment with less apprehension since the required payment can be made until the term period indicated on the bill of exchange expires. If the goods are supplied on credit, then the trader can further sell the goods in the local market before the deadline and can make the payment even as he earns a profit over the sale of the merchandise in question. Bills of exchange provide legal protection to the trading parties where the defaulter is liable for prosecution in the court of law. Payment using bills of exchange can also be made before the deadline. However, conventional banks charge interest according to the amount and the remaining days before the deadline (needs confirmation). Islamic banks have their own Shariah compliant alternates for this which will be discussed later.

3. 4.

CONDITIONS WHICH AUTHENTICATE CREDIT MONEY

From the legal point of view, there are certain conditions which must be fulfilled before credit money can be used for the purpose of lawful trade. A summary of these is as follows: 1. The drawer and the drawee must agree to use any form of cred it money and the drawer must put his signature on the document. The drawee must then accept this with his free will, indicating the mutual consent of both parties for the discussed mode of transaction. A clearly stated objective must be known before the document is prepared. This mode of exchange represents money hence the term credit money which can be redeemed for the amount it represents. Credit money

2. 3.

4.

227 hence cannot represent nor can it be redeemed for any goods or services. Similar to any other legal issues, there are set age restrictions for the drawer and the drawee. If this age does not comply with the rules as specified by the laws of a country, then the individuals will not be allowed to use credit money for any transaction. "" The law makers have defined a qualifying age limit of twenty one 1 years

5.

It is mandatory for the drawer to put his signature on any document specified as credit money just as in the case of checks. 6. Certain details of the drawee must be present on the credit money document such as the full name. 7. The name of the payee also needs to be mentioned. 8. The date and place of issue also needs to be mentioned. 9. In some cases the date and place where the payment is expected to be made is also required. 10. The amount which needs to be delivered needs to be written clearly in numerals and letters. 11. In case of check and Hundi, three parties are involved; drawer, drawee, and payee. 12. In case of bonds, only the drawer and drawee are involved. In the Arabic language, bills of exchange and checks are referred to as 2 and bonds are called .

USING CREDIT MONEY

Credit money is used via endorsement which means giving another individual or party the right to use the promissory note, check or bill of exchange etc. All these documents are generally valid from one month to up to three
------------ ---------------- ( ) )( 2 Ibid.
1

228 months for local transactions and up to six months for international transactions. Although it is possible for the document to go into different hands during this period, it can only be cashed or utilized by the authorized person who is specified on it and who signs for it as a declaration of acceptance.

LEGAL MEANS OF ENDORSEMENT

Credit money can only be authentically endorsed under the following conditions: 1. 2. 3. 4. 5. The signature of the receiver must be mentioned on the bill. The endorsement should not be temporary but permanent. Also a single document cannot be endorsed to multiple parties or individuals. If the drawers are more than one then payment should be made separately from each party, i.e. one at a time. If the bill has been endorsed multiple times, then the particulars of each endorsee must be mentioned on the bill. Generally the endorsee is required to sign the bill at the back, or any other specified location as proof of acceptance.

TYPES OF ENDORSEMENT
There are seven different types of endorsement: 1. Blank Endorsement:The blank endorsement issued by the payee or the endorsee can be cashed by any individual who has possession of it. Special Endorsement: In special endorsement, the endorsee specifies the name of the person who can legally cash the bill. No other person can cash the bill except this individual. Conditional Endorsement: In the case of conditional endorsement the payment of bill is being made stipulated with a condition to fulfilled, for example, the amount of this bill should be handed over to someone on the delivery of bill of landing. It means, the mentioned above person will be entitled to receive the specific amount after the delivery of the bill. Partial Endorsement: In a partial endorsement, only a certain percentage of the total payment is released to the endorsee.

2.

3.

4.

5.

229 Restrictive Endorsement: Restrictive endorsement allows only the specified individual to cash the bill or the funds to be transferred to the specified bank account number. Negative Endorsement: Sometimes the endorsee states sans recourse or without recourse to me on the bill. This means that the endorsee is not held accountable if there are insufficient funds to cover the amount due to the endorsee. Often banks charge both parties when checks bounce. However on negative endorsement bill, the endorsee would not be charged and is relieved from potential charges when check indicatez sans farinas or no charges. Facultative Endorsement: In facultative endorsement, the endorsee is relieved from some or all of his responsibilities.

6.

7.

230

CHAPTER-9: FINANCIAL INSTRUMENTS

BACKGROUND OF DISCUSSION
Before moving to the actual discussion, the definitions of sale of debt and Hawala will be revised again since Shariah rulings related to these will be thoroughly referred to in this chapter. In a capitalistic economic system sale of debt has become a norm and a variety of financial instruments have been developed to support the activity including credit sale. These various instruments are also considered tradable and their trading is often done at a lesser or greater price than their actual face value. There are many different forms of credit sale group under the following three categories: ) Sale of debt for debt ( ) Sale of debt to debtor ( ) Sale of debt to non debtor (

) SALE OF DEBT FOR DEBT (

Sale of debt for debt is also referred to as sale of debt against debt. Such a transaction can be made by two parties. For instance Zaid sells one ton wheat for Rs. 2,000 to Omar and both enter a contractual agreement that the wheat and the money will be exchanged after a month. Now Zaid owes one ton wheat to Omar while Omar owes Rs. 2,000 to Zaid. In another case, Omar enters a future contract with Zaid where Omar sells one ton wheat to Zaid but promises to deliver after a month though Zaid has already paid Rs. 2,000 for it. After a month, Omar fails to deliver the wheat and requests Zaid to resell it for Rs. 2,000, which Zaid agrees to pay after a month. This is because after the first contract the ownership of the wheat was transferred to Zaid, making it a liability for Omar. If Zaid agrees, then it means that he has purchased Omars debt for debt. In other words, Omar has sold his debt for Zaids debt.

231 Such a sale transaction is prohibited and illegitimate according to Shariah rulings and is evidenced from the following Hadith: " " Prophet (SAW) has prohibited sale of debt for debt.
1

Though the authenticity of this Hadith is often debated among the Shariah scholars, there is little doubt that it is genuine and implementable when examined according to Shariah rulings. Shariah scholars qualify the Hadith as Talqi-bil-Qabool ( ) and Ulema accept it as a source. This means that the Hadith is not falsified or distorted. Allama Seoti (RA) also confirms this by stating that a Hadith which is qualified as Talqi-bil-Qabool cannot be considered falsified. :" : : : : 2 -" : Hence in the light of this Hadith the majority of scholars concur that the above detailed types of transactions are illegitimate and prohibited.

) SALE OF DEBT TO DEBTOR (

In transactions entailing sale of debt to debtor, the credit is exchanged for another item. For instance, Omar owes Rs. 1,000 to Zaid and asks Zaid to take a piece of furniture worth Rs. 1,000 as payment of this loan. If both of them agree on this, then the transaction will be permissible in the light of Shariah as per the majority of Islamic scholars and jurists.

---------------------------- : : : : : : : 2 --------------------------------------------------------------------------- :
1

232 Allama Kasani (RA) states: " ( : ) -" It is allowed for a person carrying the loan to sell it off. to the debtor, because there is no problem in delivery of the subject matter to the 1 buyer. In making all these transactions, all rules applicable on ordinary sales will be applicable here as well. An example of these rules is that the subject matter should be at least under the constructive possession of the seller otherwise it wont be permissible for him to sell it. According to Allama Kasani: -" " "Muslam Fieh' must not be sold, as Muslam Fieh' is the subject matter, and it is not allowed to sell subject matter unless it is under the posession 2 (of the seller)." Also if the subject matter on both sides of the transaction fall on the list of items on which the rules of Riba are applicable, then it must be ensured that none of these rules are violated. Similarly no rebate ( ) or penalty can be charged during the transaction so that the payment remains exactly equivalent to what is due. With deffered price which is more than actual debt, it will be considered Riba, and it is a kind of Taqzee am Torbi (pay or increase in debt). Religious scholars have conducted detailed discussions on this issue on various occasions. For instance, one of the points these discussion have brought forth, as already stressed repeatedly in Shariah and throughout this book, is that the debtor will not be allowed to return the payment with any form of addition as would qualify as Riba.

) SALE OF DEBT TO N ON-DEBTOR (

In this type of transaction, the debtor sells his debt to a third party. However, there is a difference of opinion between scholars over the legitimacy of this form
1 2

-------------------------------------------------------------------------------------------------------- )/( Ibid

233 of transaction where the Hanafi and Hanbali scholars consider such transactions illegitimate. According to Imam Muhammad (RA): -"" Unless the creditor receives his payment it is not allowed for him to sell it. This is so because it is uncertain that he will receive his payment or 1 not. According to Allama Kasani (RA): " " A sale contract to sell credit to a third party cannot be established. This is because the subject matter is either constructive wealth as it relates to Zimma or it means to make owner and deliver. In both cases the subject matter cannot be delivered on the sellers side. A lso no duty to deliver placed on the debtor is permissible since it would be a condition of delivery for non-seller. This condition would hence be void and 2 consequently the sale would also be void. Qazi Abu Yaali Hanbali (RA) states in this context: " -" There is a difference of opinion in credit sale to third party. Abu Talib has asked to refrain from it and has also provided a justification and there is no contradiction in credit being illegitimate in case if it is sold to 3 a third party. According to Allama Mardavi Hanbli (RA): " -"
1 2

------------- ------------------ ): ( -------------------------------------------------------------------------------------------------------- )/( 3 --------------------------------------------------------------------------------- )/(

234 It is not legitimate to sell credit to a third party. This is the correct 1 viewpoint and has been adopted by Ashab (various scholars) as well. It can be concluded from the above listed viewpoints that credit sale to a third party is prohibited unless it is done through Hawala. In the latter case it is permitted unanimously by all scholars from all schools of thought. There is a difference between Hawala and a sale contract. For instance, in cases of Hawala if the debtor or third party is unable to produce the required amount and the witness is also absent, then the creditor can contact the real debtor for the required amount. However in cases of credit sale to a third party, all rights of the subject matter are transferred to the new debtor or third party. If the new debtor or third party defaults then the creditor will not have the right to demand the real debtor for the payment. For this reason credit sale to third party is not allowed since it introduces an element of uncertainty into the transaction and increases risk for the creditor. Neither of these elements are present when transactions are done via Hawala. The Maliki and Shafii scholars have their own stance on the issue:

M ALIKI V IEWPOINT
Scholars belonging to the Maliki school of thought declare the sale of debt to non-debtor illegitimate unless the following conditions are fulfilled: The real debtor be present at the time of the contract and must agree over the amount of payment. The subject matter must consist of items whose sale is allowed without physical possession. For instance, the sale of eatables is not allowed until they are in the physical possession of the seller. The nature and type of items being exchanged must differ such as the exchange of furniture for cash. Gold and silver must be involved in the transaction. There must be goodwill between the creditor and third party before the transaction can take place.

These conditions are further confirmed from the statement of Allama Zarrkani:

---------------------------------------------- ---------- )/( )/(

235 " ...... 1 "-

S HAFI I V IEWPOINT
As per the opinion of Allama Noovi (RA), credit sale to a third party is not considered legitimate by the scholars of the Shafii School unless the seller acquires possession of the subject matter during the contract. In this case however, the debt will no longer exist which indirectly implies that such transactions are not permitted. " : 2 " " : : : 3 " Allama Noovi (RA) states in Minhaj Al-Talibeen, these statements confirm that Shafii prohibit the sale of credit to a third party. " "- In short the first form of credit sale is unanimously prohibited by scholars from all schools of thought; the second types is permitted by all scholars; and the third type is allowed only by the Maliki scholars but only when certain conditions are fulfilled, which are impossible in most cases. This implies that the third type of 4 credit sale is directly or indirectly prohibited by Shariah.

---------------- (---------------------------------------------------------------------- )/ ----------------- (------------------------------------------------------------------------------ )/ 3 ---------------- (------------------------------------------------------------------------------- )/ 4

1 2

236

HAWALA (TRANSFER OR ASSIGNMENT)

Hawala is a term which will frequently be used throughout this chapter. Hence it is important to understand its definition, related terminologies, conditions and Shariah rulings. In the Arabic lexicon, Hawala means to relocate whereas the terminological meaning in jurisprudence literature differs: -" " "The transferring of debt from the actual debtor to a third party"
1

Hence in jurisprudence literature it means that the debtor transfers his debt to another person or a third party, relieving himself of the responsibility to repay the loan. This differs from Kafalah where the debtor is not relieved of this responsibility.

TERMINOLOGIES
Following are some important terminologies used in conjunction with Hawala: 1. 2. 3. 4. 5. Muheelthe actual debtor Muhtal/Muhtal ilaih/Muhtal iLaihthe actual creditor Muhtal Alaehthe third person who takes the responsibility to pay the debt of the actual debtor. Mhutal Bihithe debt Tavaaa situation in which the creditor doesnt receive his payment. In Shariah it has two forms: a. The third party denies and swears that he hasnt accepted to pay off the debt and the debtor is also unable to produce any witnesses to that account. b. The third person defaults or at worst dies in the same state.

In both of the above cases, if the actual creditor does not consult the debtor for the payment then the subject matter will be considered as expired. This is referred to as Tavi.

------ )/( :

237

METHOD
Hawala is primarily based on the mutual agreement between the debtor and third person. This is also confirmed by Allama Kasani (RA): " 1 -"

CONDITIONS
One of the main conditions for Hawala is that all involved parties i.e. the debtor, the creditor and the third person must be adult and mature individuals who should agree to the contract with freewill. The presence of a debt is also a necessary condition with the quantity of payment should be clearly known to all parties without any ambiguity. However Hawala of Aeyan ( )or goods is not permitted. All these conditions are also acknowledged in Maayeer Sharyia:
2

" -"

TYPES OF HAWALA
Restricted Hawala or Muqyyidah: In this form of Hawala the third person is already indebted to the actual debtor. In order to make the payment, the third person can reduce his debt with an amount equal to the payment he delivers to the actual creditor. In other words, the actual debtor never hands him the cash for payment to the actual creditor. Unrestricted Hawala or Mutlaqah: In an unrestricted Hawala, the third person is never indebted to the actual debtor and is free to make the payment on his own accord. The third person can later demand the actual debtor to redeem him for the payment amount. Hawala Halaah: Spot payment. Hawala Moujlah: Deferred payment.
3

1 2

----------------------------------------------------------------------------------- )/( ------------------ ---------------------------------------------------------------------------------- ): ( 3 Ibid

238

RULES OF HAWALA
Certain rules pertain to this mode of transaction: 1. 2. 3. The actual debtor is relieved from his responsibility to pay off his debt. The actual creditor can demand his payment from the third party. If for some reason, the actual creditor pursues or chases the third person for his debt, then the third person also has the right to pursue the actual debtor.

If any of the following scenarios emerge in the Hawala, then the third person will be considered relieved of his responsibility to pay the debt.: 1. 2. 3. 4. 5. If the contract expires. In cases of Tava, as discussed earlier. The third person makes the payment to the actual creditor. The third person is given charity equivalent to the amount owed to the actual creditor. 1 The actual creditor dies and the third person is his relative.

BANK CHECK
A check is a signed document used to transfer funds from one bank account to 2 another. According to the definition presented by Dr. Usman Shabbir: " () -" A check is a form of Suk or a certificate representing some goods. It is a document containing instructions for one bank to transfer specified funds 3 to a certain individual or the bearer of the check.

-------------- ----------------------- Introduction to Money and Banking, page 223. 3 ------------ ----- ()
1 2

239 Dr. Jayed concurs with this definition where he states: " () -" Also according to Agarwal: A check is an instrument containing an unconditional order, signed by the depositor, directing his banker to pay on demand a defined sum of money to himself or to the person named therein or the bearer of the 1 check. There are generally three users of a check: Drawee or the person or depositor who writes and signs the check. Drawer or the bank that acts on the instructions of the check. Payee or the receiver of the amount the specified on the check.

DIFFERENCE BETWEEN A CHECK AND BILL OF PAYMENT

1. 2. 3. 4. 5. 6. The drawer for a bill of payment can be any individual whereas only banks are the qualified drawer of checks. Drawers of bill of payment are bound to accept the payment whereas banks are not bound to accept checks. Payments against bill of payment are due on specified dates whereas checks are valid until the expiration date specified on them. Bill of payment is not crossed whereas it is possible for checks to be crossed. Bill of payment may carry a discount but checks cannot do this. Payment against a bill of payment may be made in installments if required. This is not possible with checks where the entire amount has to be made in full.

TYPES OF CHECKS
Bearer Checks: Bearer checks are the simplest form of check where any person presenting this check to the bank can receive the funds specified on it. The bank

Introduction to Economic Principles. Dr. A. N. Agrawal

240 is not responsible to verify or investigate whether or not the payment has been made to the right person. Order Check: In case of order checks, the bank is responsible for verifying whether or not the payment is being made to the right individual. For verification purpose, the bank can ask for proof of identification or other necessary information from the person presenting the check. Cross Check: Cross checks are considered the safest form of checks where the bank does not pay cash but transfers the specified amount directly to the account of the payee whose name is mentioned on the check. This eliminates chances of theft or forgery. Post Dated Checks: Post dated checks cannot be cashed before the date specified on it. This helps traders or other individuals to ensure that sufficient funds are in their account before the payment is released to the suppliers. There are certain reasons due to which checks are likely to be dishonored: 1. 2. 3. 4. 5. 6. 7. 8. 9. Differences in the signature of the drawee. Request for amount before the specified date or after the expiration of date on the check. Insufficient funds in the drawees account. Death of the account holder. Foreclosure of bank where the account is held. Instructions from the court of law against payment. Overwriting on the check. Difference in the numerals and letters of the specified amount. Suspicion of forgery or fake signature.

BANK CHECK IN THE LIGHT OF SHARIAH

There is a difference of opinion among Islamic scholars on this issue depending upon the type of check and the purpose for which it is used. Some scholars deem bank checks to be Hawala while other categorize it as Wakala. An extract of the analysis of Syed Muhammad Baqar Al-Sadr on the subject is as follows: Generally the one who writes the check is the debtor and the one who receives the amount (beneficiary) is the creditor. The debtor writes the check

241 for the bank and hands it over to the creditor so that his debt is paid off. There are times when the debtor has money in his bank account and sometime he doesnt, causing overdraft to occur. The rules to deals with these two situations are as follows: 1. If the writer of the check extracts money from his own bank account then it will be termed as Istifa-e-Dain (, means receiving full payment). If the writer is the debtor and gives this check to the beneficiary (his creditor) then it will be termed as Hawala (from the debtor to the creditor). This is correct as per Shariah and the debtor will be considered relieved from his responsibility (unless the check is bounced). If the bank account of the writer of the check is empty and overdraft occurs when the beneficiary or the creditor presents this check to the bank for redemption, this will also be considered Hawala. However in this case the bank is not liable to pay on behalf of the issuer of the check. For this reason jurisprudents have termed it as Hawala Ali AlBarra which is allowed. In this case it is possible that the bank accepts the check. If so then it means that the bank has accepted the Hawala. This will make the issuer of the check a debtor of the 1 bank for the amount which was mentioned on the check.

2.

AAOIFI Shariah Standards summarize the Shariah viewpoint on bank check in following words: On issuance, a check against a current account is a form of Hawala if the beneficiary is a creditor of the issuer i.e. the account holder for the amount mentioned on the check. In this case the issuer, the bank, and the beneficiary are the transferors, the payer and the transferee respectively. If the beneficiary is not a creditor to the issuer of the check, then this is not a Hawala transaction because there can be no Hawala transaction without an existing debt. In the absence of a debt, the transaction becomes an agency contract for the recovery of the amount of the debt on behalf of the transferor, which is lawful in Shariah.

----- - ( ) 1

242 If the beneficiary of the amount of a check is a creditor to the issuer, then issuing a check against the account of the issuer without a balance is an unrestricted transfer of debt if the bank accepts the overdraft. If the bank rejects the overdraft, then this is not considered a transfer of debt, in which case the potential beneficiary may have recourse to the issuer. The holder of a travelers check , the value of which has been paid by him to the issuing institution, is a creditor of such an institution. If the holder of the travelers check endorses the check in favor of his creditor, it becomes a transfer of debt in favor of a third party against the issuing institution that is a debtor to the holder of the travelers check. This is a restricted transfer of debt and the amount of the debt is the value of the check for which the institution received 1 payment. Mufti Taqi Usmani in his work Takmla Ftah Al-Malhum ( ) has discussed the Shariah rulings on checks in following words. " -" It is correct that a bank check is certificate which denotes that the person signature on it allows the holder to act as his Wakeel, to receive his debt from the bank on his behalf. Therefore check is not Saman and for this reason possession of check will not be taken as possession of the real amount until encashment. Zakat is also not applicable on the amount of the check before encashment. Gold and silver cannot be purchased through a check as the possession of the amount is not acquired at the time and venue of the contract. Furthermore the issuer of the check also has the right to cancel the check before it is presented to 2 the bank. In the light of these statements, it is the opinion of author that a bank check qualifies as Hawala. Therefore it is incorrect to explicitly deny this fact and tag it
1

Shari'a Standards 1423 AH, 2002 - Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). 2 ------------ --)/( ( )

243 as a simple certificate of debt. However, in the case of the purchase of gold and silver, the problem occurs if the possession of these metals is not acquired at the time and venue of the contract. But if the buyer takes spot-possession of the gold and silver right when he pays with the check, then this would be permissible, as per the opinion of the author. This is because in the current age, checks represent some amount of paper currency and the credit sale with any currency is permissible according to Shariah as it does not qualify as BaySur f or money exchange.

BILL OF EXCHANGE
In his book Islam and Modern Economics and Trade, Mufti Taqi Usmani explains the bill of exchange in the following words: Its a special kind of document, which a trader issues to his buyer at the time of sale. Sometimes the payment against this bill is due at a later time, and the buyer (debtor) accepts the terms mentioned on it by signing the bill, i.e. he gives his written agreement to pay a certain amount on a specified date. This bill is known as bill of exchange (Hundi in Urdu). Its expiration is known as maturity and the date on which it expires is referred to as the maturity date. The amount which is mentioned on it can be demanded only at the time of maturity. However in case the creditor needs money at an earlier date then he can exchange this bill with a third party against the amount (equal or less than what the bill carries) by transferring the rights of redemption to the third party. This he does by signing on the back of the bill which is called endorsement. The third party can also deduct some amount which is known as discounting of the bill of exchange. The amount of discounting depends upon the time left before maturity, as the amount will be lesser if maturity is close. Generally this discounting is done by the banks, which make it a type of short term loan given by banks. These bills generally 1 mature after three months.

---- ---- ( ) ):(

244 Mufti Taqi Usmani has also defined the bill of exchange in his Arabic book Bhwas: " "Discounting" 1 -" The bill of exchange is defined by Dr. Abdul Aziz Fehmi as follows: ( The Drawer) -"( The Drawee) This is one of those documents which are used in western countries for international trade. The issuer of the bill guarantees that he will make a 2 payment unconditionally to the beneficiary on a specified date. According to Agarwal: A bill of exchange is an order from a creditor to the debtor to pay a 3 certain sum of money to himself or to the bearer. The bill of exchange act 1882 defines bill of exchange as follows: An unconditional order in writing addressed by one person to another signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a 4 sum certain in money or to the order of a specified person or to bearer.

- )/( ( ) -- ):(-- ( ) 3 Introduction to Economic Principles, by Dr. A.N.Agarwal 4 --------------------------------------------------------------------- ): (

2

245

REQUIREMENTS OF BILL OF EXCHANGE

There are certain conditions which need to be fulfilled before a bill of exchange can be used legally: 1. 2. 3. 4. 5. 6. 7. 8. The bill should be in the form of an order and not in the form of a request or appeal. The bill should be unconditional where the payment must be made without fulfillment of any condition. The bill must be in the form of a written document. The bill should be issued by a person for another person or a company or vice versa and cannot be issued by an individual for himself. The bill must be signed by the issuer. If it is issued by a company, it should be signed by a person who holds sufficient authority. The payment should be made at a specified future date. The bill must indicate the exact amount of payment in the absence of which the bill will have no legal value. The payment must be made to the person specified on the bill or to a 1 third person endorsed by him.

COMMON TYPES OF BILL OF EXCHANGE

Following are some recognized types of bill of exchange: 1. With Respect to Location: a. Inland Bill: This type of bill is used for trading within a country where both parties involved in the trade reside in the same country. Consequently the transfer of funds also takes place within the boundaries of that country. b. Foreign Bill: This bill is used when the trading takes place across different countries. For instance, when a trader from Pakistan issues a bill to his supplier in Singapore, this is classified as a foreign bill as the payment will be made in Singapore. With Respect to Purpose: a. Commercial Bill: The purpose of a commercial bill is to allow the buyer to make payments at a future time against any goods or

2.

Ibid

b.

246 services which he might have acquired from the seller or the provider. The acceptance of this bill by the seller or the service provider is a required condition for the legal validation of this bill. Accomodation Bill: This type of bill carries the right to discount the bill so as to provide some financial assistance to the carrier.

3.

With Respect to Time of Payment: a. On Demand Bill: An on demand bill can be redeemed whenever required. b. Time Bill: This type of bill is redeemable up to a certain time from its date of issue or after it is received by the seller or service provider.

PREPARING A BILL OF EXCHANGE

There are certain rules which need to be observed in order to prepare a legally valid bill of exchange for use in trade: 1. Pasting of Revenue Ticket: The issuer of the bill has to paste a revenue ticket at a corner of the bill of exchange. Without this ticket the bill is not considered legally valid. Amount of Payment: The exact amount of payment needs to be clearly mentioned on the bill in numerals and letters. The Date of Issue: The date of issue of the bill needs to be clearly mentioned on the bill. This date generally appears at the opposite corner from where the revenue ticket is pasted. The Name of the Beneficiary: The name of the recipient person or firm needs to be mentioned clearly on the bill. For Value Received: These words must be clearly stated on the bill. The Signature of the Issuer: The bill has no legal value without the signature of the issuer. In the absence of signature it is nothing but an ordinary piece of paper. The Name and Address of the Issuer: The name and address of the issuer must be stated on the bill opposite to the signature of the issuer. Validity for Acceptance: Despite the fulfillment of all these requirements, a bill would still not be valid until the particulars of the third party along with his acceptance are mentioned on the bill. This is because after the issuance of the bill, the issuer transfers the

2. 3.

4. 5. 6.

7. 8.

247 responsibility to a third party which is usually a bank in most cases. Unless that bank clearly states its acceptance, the bill will not be considered legally valid.

DISCOUNTING OF BILL OF E XCHANGE

Time bills are very common today since they allow the buyer to pay at a future date specified on the bill. If the recipient of the bill is in need of the funds before the maturity date, then he would go to the bank to acquire a short term loan in lieu of the bill. The bank then exchanges or purchases the bill with an amount discounted by a percentage equal to the interest rate. The payment which the bank now makes is hence a short term loan on which the interest charges are taken in advance by the bank. This is termed as discounting. The loan is automatically paid off at the time of the maturity of the bill when the bank acquires the amount from its redemption.

ANALYSIS OF BILL OF EXCHANGE IN THE LIGHT OF SHARIAH

If the issuer of the bill of exchange is the debtor of the beneficiary then the bill will qualify as Hawala. In this case the bank will be considered as the payee or the third party who accepts the responsibility to pay the debt. If the issuer is not the debtor of the benefiary, then the bill will be categorized as Wakala. In case the payee or the third party, usually the bank, is not indebted to the issuer of the bill, then the bill will qualify as Hawala Mutaliqah. : ( ) -1" :"
1

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248 -" Bonds, bill of exchange and other financial instruments which carry specific amounts are considered Hawala Sahiha from the day they are issued. This is so because the issuer has declared that he is the debtor of any individual who hold this bill (legally). Therefore whenever he passes on this bill to another person, he is issuing Hawala. The agreement of debtor and the creditor exists by default over this document. The payee also impliedly agrees that he will pay each person who holds this bill as per the amount stated on it. The pronouncing of agreement is not mandatory as far as the matter of Hawala is concerned; rather it even 1 occurs if Tatee ( )exists, just like in the case of Bay.

THE RULE OF DISCOUNTING

The discounting of bill of exchange qualifies as the sale of credit for credit ( ) . As per the opinion of majority of Islamic scholars and as already repeatedly discussed earlier, this is prohibited in Shariah. A certain document called Jamika, which is similar to a bill, remains in contention among scholars. This document is issued by the Bait-ul-Mal or the administrator of the Waqf for a person who owns some shares of assets including cash in the Bait-ulMal or the Waqf which he needs to draw in times of some financial need. It is illegitimate for that person to sell Jamika to a third person for an amount lesser than what is specified on the Jamika as this would constitute credit sale. Allama Haskafi (RA) agrees with this view: :" ( ) : : : : : : 2 -"

1 2

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249 The literature of the Hanbali School comments on this as follows: " -" It is not permissible to sell the endowment before its possession is acquired. This is because the subject matter is not present and there is a degree of uncertainty as it is still in the possession of Diwan such as Baitul-Mal etc. and selling its certificate is also prohibited since the purpose is 1 to sell the subject matter and not its certificate. This clarifies that since the sale of credit to a third party ( )is prohibited and illegitimate near the Hanafi and Hanbali scholars, therefore the sale of the bill of exchange even without discount is also illegitimate due to already discussed reasons. According to Maliki and Shafii scholars this will be allowed only if the bill of exchange is not backed by cash. In case it is carrying cash, the selling price of the bill needs to be equal to the amount of cash it carries. This illustrates that discounting is not allowed by any of the four schools of thought. If there is any disagreement it is over the conditions which allow the sale of the bill of exchange. The following resolution in this context was passed by Majma Al-Fiqh Al-Islami, Jeddah: -" " The discounting of bill of exchange is illegitimate because it leads to 2 Riba Al-Nasiyah which is prohibited in Islam. Mufti Muhammad Taqi Usmani has a different opinion on the issue where he doesnt consider it as a sale of debt but Hawala. He states: In jurisprudence discounting is considered illegitimate as discounting of the bill by the party, who accepts it as Hawala from the actual holder less ) , qualifies as Riba Al-Fadl. This discounting then his debt ( cannot be termed legitimate because the sale of debt as Bay and ) , the seller Hawala are different. In case of sale of debt (
1

-------------------------------------------------------------------------------------------------- )/( 2 - // /

250 completely transfers the responsibility of payment to the buyer of the debt. However in case of Hawala the responsibility to pay remains with the actual debtor or issuer i.e. if the actual creditor doesnt receive the payment then he holds the right to consult his actual debtor. This is observed today in case of discounting where the discounter consults the actual issuer or debtor if he is unable to receive the payment. For this reason this is not sale of debt to the third party ( ), rather it is Hawala Bin-Naqs Man Al-dain ( 1 ). Mufti Taqi Usmani asserts this point further in his Arabic books: " 2 -"

S HARIAH C OMPLIANT A LTERNATE FOR D ISCOUNTING OF B ILL OF E XCHANGE

There are a number of Shariah compliant alternates for discounting of bill of exchange. For instance, instead of selling the bill the trader or issuer can authorize the bank to accept payment in lieu of his debt and assigns a fee to the bank for acting as his Wakeel. After this the issuer can take a loan from the bank equivalent to the amount carried by the bill. The bank can now collect payments and adjust them subsequently against the loan which the issuer or trader has taken from the bank. This can be illustrated by an example where Zaid wishes to redeem a bill worth Rs. 100,000 by making the bank his Wakeel. He contacts the bank for this purpose and agrees to pay Rs. 1,000 as the bank fee. The bank will loan Zaid Rs. 99,000 and upon redemption of Rs. 100,000 from the actual issuer or with Muqassa, it will keep Rs. 1,000 as its Wakala fee and will write off Zaids loan with the remaining Rs. 99,000. However, there are certain conditions which need to be fulfilled before this entire process can be considered legitimate. : :
1

Islam and Contemporary Trade and Economic, page 150. 2 - ( )

251 : 1. The loan contract and the Wakala contract must be made separately in a manner where the first contract is not conditional for the second and vice versa. The Wakala fee must not be related to the maturity date i.e. there should be no variation in fee even if there is a change in the maturation date. The Wakala fee must not be dependent upon the presence of the loan ) which is whereas it will qualify as a benefit over a loan ( 1 illegitimate.

2.

3.

Mufti Muhammad Taqi Usmani additionally states: two points emerge in this suggestion; one is the relation of the Wakala fee with the amount of money carried by the bill i.e. the fee would increase as the amount increases and vice versa. The second point is an increase in the Wakala fee with the duration of the maturity i.e. more fee is charged if the maturation date is extended or vice versa. Here it needs to be analyzed whether or not it is correct to relate the Wakala fee with the amount of payment or the time of the maturation date. It seems justified to relate the fee with the amount of payment, although there is a difference of opinion on relating the compensation of the broker with the amount of payment. However Allama Shami (RA) has preferred doing so. This means that it would be legitimate for the broker to sell something of a greater value for a larger fee or to charge less fee for something of lesser value. The extract of the reason presented by Allama Shami (RA) is that the amount of effort put forth by the broker to sell something of a greater or lesser value should remain the same though the nature and worth of the effort can differ, due to which the compensation can vary. This brings forth the idea that there is a provision to link the broker fee with the amount of payment. However there is no reason to link this fee with time as it would be similar to a
1

---------- - ( )

252 situation where an interest free loan is given with a Wakala fee equal to the interest amount incurred over the period of the loan. In other words the interest which couldnt be charged over a loan would now be adjusted in the increasing Wakala fee equal to the interest rate. In short, the Wakala fee can be made proportional to the amount of the loan but it would be illegitimate to link it with any shrinkage or expansion in the maturity date of the bill. Viewpoint of Shariah on Endorsement (Tazheer) of Bill of Exchange There are two common forms of endorsement and the verdict of the Shariah on each is as follows: 1. Tazheer Tamleeki: In this form of endorsement the endorser transfers the amount carried by the bill to the beneficiary. If the endorser is the debtor of the benefiary then it will qualify as Hawala. If this is not the case then it will be Tawkeel bil Qabz. (Agency for Collection) Tazheer Tawkeeli: In this form the client or the holder intends to redeem the bill from the bank via endorsement. This would not qualify as Hawala but as Wakala, which is legitimate with or without any fee paid to the bank.

2.

S HARIAH V IEWPOINT ON R EMITTANCES OR T RANSFER OF M ONEY

If the client of the bank asks to send money in the same currency from his bank account to a specific individual then it will qualify as Hawala and any fee the bank charges over this transaction will be legitimate as this fee will be in lieu of the effort taken for the transmittance of the money. This subject has been discussed 1 in detail in previous chapters.

PROMISSORY NOTE
A promissory note is An unconditional promise in writing made by one person to another signed by the maker engaging to pay on demand or at a fixed or

For details please see

253 determined future time, a sum certain of money to or to the order of a specified 1 person, or to the bearer. In the light of this definition, a promissory note must fulfill the following conditions: 1. 2. 3. 4. 5. 6. It must be unconditional. It must be in written form. It must specify a specific amount of money. It must be made to a specific person or a third person on the order of the actual recipient, or by its holder or owner. The payment must be on demand or on a specified future date. It must carry the signature of the issuer.

The Glossary of Banking and Finance defines a promissory note as follows: Promissory note is a financial instrument containing an unconditional undertaking signed by the maker to pay on demand or at a fixed or determinable time in future, a certain sum of money to the holder or to 2 the bearer of the instrument, or to the order of a designated party.

VIEWPOINT IN SHARIAH
The possession of this note is not similar to the possession of the amount which it represents whereby its use is illegitimate in transactions in which possession is mandatory such as in BaySurf, exchange of currencies and future sale. Additionally, promissory notes may not be sold at a value greater or less than 3 their face value.

DIFFERENCE BETWEEN A PROMISSORY NOTE AND BILL OF EXCHANGE

1. In a bill of exchange, the responsibility of the issuer becomes secondary after its acceptance by the beneficiary. In the case of a promissory note, the issuer is the original debtor of the beneficiary and the debtor remains in contact until the debt is paid off.

1 2

Introduction to Money and Credit, page 258 Glossary: Banking and Finance, English-English-Urdu, Shakil Faruqi Student Edition, State Bank of Pakistan, Institute of Bankers Pakistan, Lahore School of Economics. 3 For details please see

2. 3.

4. 5. 6.

254 A bill is an unconditional order to pay a specified amount whereas a promissory note is a promise to pay a certain amount. A bill requires acceptance from the beneficiary for legal validity. This is not required in the case of a promissory note since this is simply a memo containing the promise of the debtor to the beneficiary. Foreign bills are prepared in two or three sets. This is not the case with promissory notes. Bills have a greater scope for usage as compared to promissory notes Bills can be used in international transactions whereas promissory notes can only be used at the local level.

DIFFERENCE BETWEEN A PROMISSORY NOTE AND A BANK CHECK

1. 2. 3. 4. Promissory notes are just a written unconditional promise to pay where bank checks are orders to the bank to make the specified payment. Only two parties are involved in the exchange of promissory notes whereas the bank is the third party involved in check transactions. Checks expire on a given date whereas promissory notes remain valid until the payment is made. Checks have a greater scope for use as compared to notes.

PLASTIC MONEY
Credit cards are commonly referred to as plastic money and their use is widespread in societies all over the world. Debt cards and charge or debit cards are modified versions of credit cards. Some of these forms are briefly discussed below:

CREDIT CARDS:
A credit card holder is not required to open an account in the bank that has issued the certain credit card but the contract between both parties is based on an interest bearing loan. The card issuing bank provides a duration of one month to the card holder to pay any incurred charges in full before the interest rate clicks in. In some cases there may be an exception to this rule such as in the case of zero interest rate credit cards which are usually valid for up to 12 months. Even in these cards the original contract is based on the condition that any accumulated interest will be paid by the card holder at the end of the grace period. This is referred to as rescheduling which allows the card holder to defer

255 his payment along with the interest rate for the grace period specified by the card.

DEBIT CARDS:
In case of debit cards, the holder or client must have a bank account with the issuing bank. Whenever the card holder uses the debit card, the money comes directly out of his bank account. In debit cards the card holder is not allowed to borrow credit as with credit cards. Banks generally charge an annual fee for debit cards from the card holder.

CHARGE CARDS:
Charge cards are somewhat similar to credit cards where it is not necessary for the client to be an account holder in the issuing banks. These banks allow the holders to shop on credit and to make payments within a given time period to avoid interest charge. Issuing banks charge a fee for these cards.

THE SHARIAH VERDICT ON THE USE OF D IFFERENT F ORMS OF PLASTIC MONEY

For Debit Cards: Shariah has no objection to the use of these cards and their use in monetary transaction is legitimate and correct. This is because there is no debt incurred with the use of these cards nor any possibility of interest charge. However the card holder may not use debit cards to buy items prohibited by Shariah such as liquor or pornographic material etc. For Charge Cards: Charge cards may be used if the following conditions are fulfilled: 1. 2. 3. Due payments on the cards must be made before the deadline so that no interest charge is incurred. The card holder should not use the card to purchase Shariah prohibited items such as haram food, pornographic material etc. If debit cards are enough to meet the needs of the card holder, then it is suggested that the use of charge cards be avoided.

For Credit Cards: Credit cards may be used by the card holder only if the same conditions as specified in for charge cards are fulfilled.

256 ATM Cards: ATM cards are commonly used to acquire cash from the ATM machines which are directly connected to the card holders bank account. Banks charge some fee for each ATM transaction which is prohibited if it is linked to the amount of cash being drawn since it will then qualify as interest. However if the fee does not increase or decrease with the transaction amount, then it will be allowed. Bank usually also charge an ATM card issuing fee from clients. ) (Debit Card : (Charge Card): () ( ) (Credit Card): / : : : :

257 : 1 -

BANK DRAFT
A bank draft is A bill of exchange payable on demand, usually drawn by one bank 2 on another or by one branch on another, a popular means of transfer of funds. Agarwal defines bank drafts in the following words: A bank draft is a check drawn by one bank upon another or its own branch situated at a different place requiring it to pay a certain sum of money to a specified person or by his order to the bearer. A bank draft may be inland or foreign. Usually persons who have to make payment to distant creditors go to their bank to obtain a bank draft. They have to deposit with the banker the amount to be remitted along with a small commission. The bank draft is then issued which is sent to the creditor 3 concerned who gets it encashed.

PAY ORDER
It is a check like instrument issued by a bank on the request of its customers or in payment of its own expenses or dues, drawn on itself, to pay a specified sum of money to the order of specified person. Payment orders are usually issued by the banks on receipt of full amounts involved, which means that it would not be returned unpaid due to lack of funds, it is also called bankers check or cashiers 4 check. Use of bank drafts and pay orders are allowed from Shariah point of view and the bank fee charged over these documents is also legitimate.

1 2

--------------------------------------------- 1 Glossary: Banking and finance, English-English-Urdu, Shakil Faruqi Student Edition, State Bank of Pakistan, Institute of Bankers. 3 Introduction to Economic Principles, Dr. A. N. Agarwal page 352. 4 Glossary: Banking and finance, English-English-Urdu, Shakil Faruqi Student Edition, State Bank of Pakistan, Institute of Bankers Pakistan, Lahore School of Economics.

258

BOND
Bond is an interest bearing government or corporate security obligating the bond issuer under an agreement called bond indenture to pay the bond holder a principal amount on the date of maturity and periodic payment of interest over the life of the bond. Bonds are long term debt instrument and are a preferred mode of raising long term funds without selling shares. Bonds enable the bond issuer to convert non liquid or less liquid assets into marketable instruments. The market value, or the price of the bond in the market differs from the face value or the par value of the bond at the maturity by discount factor based primarily on the current interest rate and the bond rating generally, if interest rate rises bond 1 prices fall and vice versa. ( )dnoB 2 - Mufti Muhammad Taqi Usmani summarizes the characteristics of bonds as follows:

Ibid
2

( ) -

1. 2.

3.

4. 5. 6.

259 A bond is a certificate issued by the debtor as a proof that he has taken a debt from the creditor. Bonds may be sold to the general public at their face value. In other words, the payment made by the public in lieu of the bonds is a debt to the issuer. Bonds are generally issued by private companies or a government which is in need of funding. Governments often need to do this to cover their budget deficits. Issuers pay interest to the buyers over the face value of the bonds. Bonds may be sold or traded in the market at prices greater or less than their face value. Governments often issue special types of bonds referred to as treasury bills which are sold to banks or various financial institutions for the above stated reasons. Treasury bills are considered a tradable item by banks and other financial institutions.

The following books and the Glossary-State Bank of Pakistan may be referred for more details on bonds: : :

BONDS C OVERTIBLE TO SHARES

Though bonds are usually not convertible, there are certain exceptions. The State Bank of Pakistan defines them as follows: A bond that can be converted into a common stock at a conversion ratio specified at the time of bond issue has all the factures of a regular bond namely the par value, the coupon rate, maturity period,and the interest payment period. Additionally, the bond issuer pays dividend and offers the option to the investor to convert the bond into a number of common stocks as per conversion ratio of the conversion price of the stock. As a result the market price of the bond is affected both by the interest rate movements as in cell stock market movements the cost of conversion option is usually gauged by the premium paid by the bond in the secondary market trading. Convertible bonds provide a potential gain to the investor if the bond price goes up. At the same time they offer an

260 attractive bond yield, especially for corporate bond whose price is likely to materially increase over the maturity period. The market value of the option attached to convertible bond is zero or insignificant at the time the bond starts selling initially in the secondary market, but the value of the option increases as the bond price climbs up. It is also possible that bond prices may fall instead of rising with disastrous consequences for the option holder. Therefore convertible bond can also be risky in 1 addition to being potentially rewarding.

GOVERNMENT BONDS
As mentioned earlier, these are bonds issued by governments to cover budget deficits. These are quite similar to and share common characteristics with bonds issued by private companies. However government bonds are more reliable, in the strict financial sense, and are also considered less risky than private bonds. Types of common governments bonds include: 1. 2. 3. Treasury bills Treasury certificates Municipal bonds

SHARIAH STANDPOINT ON BONDS

Any interest which is earned over bonds or the profit which is gained through their trade is not permissible in Shariah. All such gains are unanimously deemed illegitimate by the greater majority of Islamic scholars. The declaration of MajmaAl Fiqh Al-Islami Jeddah in this context states as follows: " ) ( :

Glossary: Banking and finance, English-English-Urdu, Shakil Faruqi Student Edition, State Bank of Pakistan, Institute of Bankers Pakistan, Lahore School of Economics.

261 1 "- " ...... ..."- Various scholars believe that trading of bonds or certificates is also prohibited by Shariah and considered these illegitimate, irrespective of their type. Sheikh Shaltoot, Dr. Muhammad Yousuf Moosa, Dr. Yousuf Qarzavi, Dr. Abdul Azin Al-Khaiyat, Dr. Ali Al-Saloos and Dr. Saleh AlMarzoqi are among these scholars. According to them the value of bond is a debt on the issuer, who offers conditional profit over it, which comes under the definition of Riba Al-Nasiyah which has been declared 2 prohibited in Quran. " ...." All these bonds are interest bearing because the debtor promises to pay profit over the actual amount of debt. Therefore their trading is 3 illegitimate for obvious reasons as this is an usurious matter.

CERTIFICATES
"
: ----------------------- // ( ) - ------------- 3 ( ) ---------- -
2 1

262 "...... The debt bearing certificates are a form of Sukuk , representing an amount of credit, which a company accepts from the public in lieu of a fixed rate of interest. These Sukuks are tradable instruments and they are indivisible. Sometimes it is inevitable for private firms to issue Sukuk when they are in needs of funds for investment in their projects and the funds collected from shares are insufficient for the purpose. Furthermore sometimes companies also face financial downturns due to which issuance of more shares becomes unlikely, as this may cut down the dividends distributions among shareholders. Hence Sukuks are preferred as an alternate. On the other side, the public have their savings stored in their current bank accounts or in their homes which yields them no benefit. Therefore they seek opportunities to invest with traders or industrialists which would yield them profit. This is what has brought forward the idea of such certificates. This definition expounds the fact that certificates are also interest based instruments like bonds which are used to take loans from the public at a certain rate of interest. This allows firms to collect funds in order to fulfill their investment needs. The public also earns interest over their savings which is prohibited and illegitimate as per Shariah rulings. Mufti Muhammad Taqi Usmani has presented a Shariah compliant alternative for this whereby he states: " -"() However this is like an interest bearing loan which is prohibited by Shariah under all circumstances. For that matter an Islamic alternative

263 has been developed by Muslims which is known as Mudarbah 1 Certificates. The Shariah compliant alternative for interest bearing bonds and certificates is referred to as Mudarbah certificate and Musharakah certificate where the buyers of the certificates become business partners with the firms or governments issuing these certificates. The transactions hence conducted will be based on the rules of Musharakah and Mudarabah and the profit or loss will also be shared as per the rules of Shariah. These Sukuks or certificates have been discussed extensively in Al-Fiqh Al-Islami Al-Droorh Al-Arabia, Al-Adad Al-Rabia, and AlJaza Al-Slaas. A number of reputed Islamic scholars have also written papers on the issue. Mufti Taqi Usmani presents a thorough discussion on the subject in his book Bhavis, which has been referred to at various points in this book as well. According to Mufti Taqi Usmani: These are documents issued by government to take a loan from the public when revenue collection (in the form of taxes) is not sufficient for expenditure; hence the government issues these certificates. For example: 1. 2. 3. 4. Prize Bonds: Each bond doesnt yield any profit but the total profit is distributed in the form of a lucky draw to only a few holders. Defense Saving Certificates. Special Deposit Certificates. Foreign Exchange Bearer Certificates: Before the advent of these certificates, the public was not allowed to hold foreign exchange with them. A person had to face a lot of legal complications if he needed some foreign currency. As a result, people adopted illegal means to obtain and store foreign exchange. Secondly, individuals returning from other countries kept foreign currency with them even if not required by the government. Eventually to resolve the issue, the government started to issue documents known as Foreign Exchange Bearing Certificates which were valued in local currency. This allowed the government to exchange these certificates with

------------ : :

264 foreign exchange in a manner that if a dollar was valued at Rs. 80 on a certain day then a person with $100 could purchase a certificate worth Rs. 8000. In other words after the issuing or selling of the certificate the government of Pakistan would be indebted tot that individual by an amount of Rs. 8000. These certificates yield an annual profit or interest of 12 percent to their buyers. The holder of these certificates can also redeem them for dollars whenever they wish or could sell them if they please. In the above stated case, the transaction is done between the government and a common man. However for the sake of ease the holder is also allowed to sell them in the market. Trading of these certificates is generally done in financial markets. The holder, after selling the certificate, transfers his relationship with the government to the new holder. Once this is done the new holder is considered as the creditor of the 1 government. It is stated in Mosua: " () 2 -" Unlike most commercial securities, government securities, usually bonds that pay a fixed amount of interest each year, offer a guaranteed safety factor concerning their ultimate repayment. These securities are traded in the market and their price fluctuates in value, depending on trends 3 and condition of the economy.

SHARES CERTIFICATES
Shares certificates have been defined in various terms in jurisprudence literature: -""
1

---------------------------------------------- Islam and Contemporary Economics and Trade, page 77. 2 ):(- ( ) 3 The New Encyclopedia Britannica Vol-10, page 595

265 It is that receipt which is given to the holder, confirming that he has a share and stake in the company. " -" It is a receipt which confirms the share of the stockholder (in company stock) because a shareholder invests and owns some stake of the 1 company. " 2 -" In short, shares certificates or receipts represent the share of investment of the stockholder in the company stock. There are various forms of shares certificates which are beyond the scope of the current discussion on the subject. Shariah rulings pertaining to shares are mostly related to their manner of trade and 3 extraction of Zakat , etc.

BONUS SHARES
Mufti Taqi Usmani comments as follows on bonus shares: Dividends are distributed in two forms to stockholders;either in the form of cash payments or sometimes in the form of additional shares issued to the stockholders. These additional shares are equivalent in value to the dividend payments hence the name Bonus Sha res. This allows the company to generate more funds in case of any financial need. Therefore instead of paying dividends in cash form, more shares are issued (hence dividend payments are rather reinvested in the company). For example, a shareholder who was to get a dividend of Rs. 10,000, would get shares equal to this value. However in order to do so it is necessary for the company to have sufficient provision and permission (from concerned bodies). For example, if the company was allowed to issue shares of value Rs. 80 million, but issued shares of only Rs. 60
------------ --- () --------------------------------------------- : 3 For details please browse Islam and Contemporary Economics and Trade
1 2

266 million in value, then the company would have the provision to issue bonus shares of value no more than Rs. 20 million. However if the company doesnt have this provision then it has to take proper permission from the concerned authorities before it can actually do so. In order to issue bonus shares, it is necessary that the market value of the share is no less then its face value, as otherwise the stockholder will face a loss equal to the difference in the market value and face value. For example, if the market value per share is Rs. 9 and the face value is Rs. 1 10, then the shareholder will face a loss of Rs. 1 per share.

WARRANTS
The definition of warrants appears in the following words in Majma Al-Fiqh AlIslami, Jeddah: Warrants ( Warrants) Warrants are options sold by a company to its new investors on grounds that the new investors obtain the right to purchase the shares of a company at a specified rate and by a certain deadline. These instruments are tradable and remain valid for many years. Different companies issue different kinds of warrant. A holder can purchase a certain amount of shares at a defined rate for a specified period of time while sometimes the duration is not mentioned i.e. no time limit is specified. The benefit which the company gets after issuing such warrants is that the ownership of the investor or the stockholder is ensured for specified period of time, as otherwise there is a threat that this ownership will be reduced. This is so because the investors have purchased an option to
1

Ibid, page 61.

267 obtain shares at a specified rate. Also on the other hand the investors 1 can make large investments even if sufficient funds are not available. The Glossary of State Bank of Pakistan defines warrants as follows: Warrants are securities issued with preferred stocks or bonds or certificates that give the holder the right to buy a proportionate amount of common stock at specified price, usually higher than market price at the time of issue of warrants, for a specific period of time, or perpetuity. In this sense, warrants are options to the holder of the corporate stocks 2 or bonds. Warrants hence offer their buyers rights to purchase certain amounts of company stock at a predetermined rate. There will be a deadline before which the warrant holder will be able to purchase the stocks. Warrants are also negotiable or tradable instruments.

OPTIONS
Option is a contract which gives its holder the right but not the obligation to sell or buy an asset at an agreed price called strike price or exercise price over a short period in future which is of critical importance in the contract. If the contract stipulates a fixed date for a transaction in the future, then it is a European Style option. If the transaction can be done repeatedly in the future through the duration of the contract period it is referred to as a Bermuda Style option. If the time of the transaction is chosen by the holder up to the maturity date of the contract then it is an American Style option. In securities market, this 3 contract could be simply termed as Option. Mufti Taqi Usmani defines options in the following words: The right to sell or buy a specific item at a specific price is called an Option. Assume that a person promises to another that he would
1 2

---------------------------------------------- : Glossary- Banking and Finance, English-English-Urdu, Shakil Faruqi Student Edition, State Bank of Pakistan, Institute of Bankers Pakistan, Lahore School of Economics. 3 Ibid

268 purchase a certain item from him at a certain price and before a specified time i.e. before the deadline it can be sold as agreed. This is known as Option to Sell, which is literally purchased at a price paid to its issuer. The one who issues the option is bound to purchase the item as defined. However the one who receives it is not bound to sell the subject matter. Contrary to this a person may promise to sell a specific item at a specific price before a specific date i.e. this item can be purchased at the specified price before a particular date. This is an Option to Purchase options are for currencies or cereals as well. The issuer of the option gives protection and security to its buyer from the fluctuation in prices of currencies or cereals on chargeable basis. For example, a person purchases Rs. 8,000 rupees for $100 but is perplexed whether he should sell it immediately to avoid any loss in case of value decrease of the rupee in the near future or retain it to gain profit in case the value of rupee increases. He consults his friend who advises him to keep the rupees safe and within three months he will purchase them at the present day rate. However he says he will charge a fee for this promise. Now the first person is satisfied as his cash is now secure where in case the value of the rupee increases after a month, he can sell it to another party or if the value decreases he can sell these to his friend (the option seller). Option is considered tradable item and can also be sold further. This type of trading is common in other countries and its forms are also 1 getting complicated with time.

POPULAR TYPES OF OPTIONS

Listed below are some common forms of options: 1. 2. Call Option () : This is the right to purchase an item as explained in the example stated above. Put Option () : This is the opposite of a call option where the issuer of the option has a choice. However the buyer of the option or the person who had Rs. 8,000 in the above example is bound to sell that item only to the issuer.

Islam and Contemporary Economics and Trade, page 84

3. 4.

269 Straddle Option () : In this type of option, both parties are free to decide whether or not they wish to proceed with the transaction. Spread Option () : The spread option has been described in Majma Al-Fiqh Al-Islami and is similar to the straddle option. However the rate of purchase here is greater than the rate of selling.

Majma Al-Fiqh Al-Islami explains these various types of options as follows: :" 1 : "

SHARIAH RULINGS ON OPTIONS AND WARRANTS

The trading of options or warrants is not permitted in Shariah for the following two reasons: 1. Their transaction involves uncertainty since the holder of options is not always bound to purchase or sell the subject matter. In simpler words, there are chances that the transaction may not take place at all. Options are not tradable commodities from the Shariah point of view since the validity of sale transactions necessitates that the items in question qualify as a tradable commodity or medium of exchange. For 2 this reason trade of options is prohibited in Shariah.

2.

BAY-AL-DAIN
Mufti Taqi Usmani defines this instrument as follows in his book An Introduction to Islamic Finance: Here comes the question whether or not bai -al-dain is allowed in Shariah or not? Dain means debt and Bay means sale. Bay -Al-Dain, therefore connotes the sale of debt. If a person has a debt receivable
1

----------------------- : : 2 ------ ) Uncertainty) -

270 from a person and he wants to sell it at a discount, as normally happens in the bill of exchange, it is termed in Shariah as Bay Al-Dain. The traditional Muslim jurists are unanimous on the point that Bay -Al-Dain with discount is not allowed in Shariah. The overwhelming majority of the contemporary Muslim scholars are of the same view. However some scholars of Malaysia have allowed this kind of sale. They normally refer to the ruling of Shafiite School wherein it is held that the sale of debt is allowed, but they did not pay attention to the fact that the Shafiite jurists have allowed it only in a case where a debt is sold at its par value (face value). In fact, the prohibition of Bay Al -Dain is a logical consequence of the prohibition of Riba, or interest. A debt receivable in monetary terms corresponds to money and every transaction where money is exchanged for the same denomination of money, the price must be at par value. Any increase or decrease from one side is tantamount to Riba and can never be allowed in Shariah. Some scholars argue that the permissibility of Bay Al -Dain is restricted to a case where the debt is created through the sale of a commodity and its sale may be taken as the sale of a commodity. The argument, however, is devoid of force, for once the commodity is sold, its ownership is passed on to the purchaser and it is no longer owned by the seller. What the seller owns is nothing other than money. Therefore if he sells the debt, it is no more than the sale of money and it cannot be termed as any stretch of imagination as the sale of the commodity. That is why this view has not been accepted by the overwhelming majority of the contemporary scholars. The Islamic Fiqh Academy of Jeddah, which is the largest representative body of the Shariah scholars and has the representative of all Muslim countries, including Malaysia, approves the prohibition of Bay Al-Dain unanimously without a single 1 dissent.

An introduction to Islamic Finance, page 216.

271

GLOSSARY OF TERMS
Ajal: Asman-E-Urfia: Asman-E-Johria: Bait-Ul-Mal: Deferment Customary price Basic price It is a Government fund in which different collected wealth are being credited as Zakat, Jizia, etc, for the welfare of the mass. It is a kind of sale where broken fruits from the tree sold with fruits on the tree. It is a kind of sale where gold or silver exchanged with each other . Buy back Sale of debt Credit sale Deferred payment base It is sale where the full payment done in advance and the subject matter delevered after some period Name of a currency in the time of ignorance Name of a currency in the time of ignorance Dirham in change form Name of a currency in the time of ignorance

Bay Muzabana:

Bay Surf:

BayAina: Bay-Al-Dain: BayMoajjal: BayNasia: BaySalam:

Bazanti: Bazaria: Daraham Mukssarah: Dirham Baghlia:

Dirham Beharja: Dirham Stoqa: Fuloos Nafiqa: Ghala: Azd-ud-dolah: Hiba: Ijara: Ijtihad:

272 Name of a currency in the time of ignorance Dirham in crushed form Fuloos in practice of the people Dearness Name of a Muslim King Gift Lease Spending extreme struggle in the derivation of Shariah ruling Deflation Receiving debt To draw benefits Guarantee Guarantee of loan or debt

Inkimash: Istifa-e-Dain: Jar-E-Manfeat: Kafalat: Kalfat-E-Qard:

Ma'dodat-E-Mutaqarba: Countable items of the equel units Mansoos: The Shariah conjunction mentioned expressly in Holy Quran or Hadeeth. This word is giving the meaning of Surf Similar/ substitute Exchange Well-known term of Fiqh Debtor in the Hawala arrangement

Musarafa: Misl: Mubadala: Mudaraba: Muheel:

Muhtal Alaeh: Maqees Alia: Musharakah: Muslam Fieh': Mustaajir: Naikl: Naqd: Nasa: Qabil-e-Tajzzi: Rakhs: Sadaqa: Saif-e-Mudahhab: Saif-e-Mufaddad: Salam: Saman-e-Istelahi: Saman-e-Khilqi: Saman-e-Mutlaqa: Saman-e-Urfi: Samaniat: Samaniat-e-Ghalba: Samaniat-e-Johria:

273 The third person/assignee A part out of four parts of analogy Partnership Subject matter in Bai Salam lessee Name of metal Cash Differment Dividable Being cheap Charity The sword that was laminated with gold The sword that was laminated with silver Well known kind of sale in Islam Law Customary standard of value or price Natural standard of value or price like Gold and Silver Standard of value or price with out any restriction Popularly known standard of value or price Standard of value or price The thing which major part consists of valuable item The thing which holds basic value

SDR: Shirkat: Suqoot-eKhatr-e-Taqreeq: Taburru: Tabaria: Tazakhum: Tafadul Bay: Tafreet-e-Zar: Tagauyyur-e-Saman: Talaqqi-Bil-Qabool: Tasrruf: Tazheer: Urooz (Plural Of Arz): Wakala: Wakeel: Waqf: Wujoob: Wujubuha-waWujuduha: Zarr-e-Istilahi:

274 Special Drawing Rights Partnership

The risk during transportation Donation Name of a place Inflation A sale consists of excess Deflation Change in price To be accepted commonly To Use Endorsement Commodity Agency Agent Endowment Fund Being mandatory

Obligation and existence Customary money

275

INDEX
A
AAOIFI, 241, 242 Abbasid dynasty, 37 Abdul Malik bin Marvan, 36, 37 Abd-ur-Rehman Al-Sadie, 68 Abd-ur-Rehman Bin Aswad, 154 Abu Al-Waleed Baji (RA), 191 Abu Yali, 154 Abu-al-Fazal, 38 Abu-Bakar Al-Jassas (RA), 48 Adam Smith, 18 Addr Al-Mukhtar, 133, 134 adultery. See fornication Aezah Al-Masalik, 172 Afghanistan, 10, 38 Ahmad Raza Khan Baralvi, 70 Ahsan Al-Fatawee, 151, 159, 160 Ajal, 104, 115, 118, 151 Al-Adad Al-Rabia, 263 alcoholic drinks, 54 Al-Dar Al-Mukhtar, 151 Al-Fiqh Al-Islami Al-Droorh Al-Arabia, 263 Al-Jaed, 222 Al-Jaza Al-Slaas, 263 Allama Al-Jassas, 49, 51 Allama Bahoti (RA), 186 Allama Gazi (RA), 205 Allama Halwani, 85 Allama Hanuti (RA), 120, 165 Allama Haskafi (RA), 98, 136, 248 Allama Ibn-e-Abedeen, 186, 204, 205 Allama Ibn-e-Al Arabi (RA), 42 Allama Ibn-e-Al Hamam, 42 Allama Ibn-e-Al Qasim, 43 Allama Ibn-e-Al-Qeem, 85, 93, 96, 157 Allama Ibn-e-Hajr, 203 Allama Ibn-e-Hamaam (RA), 151 Allama Ibn-e-Najeem, 99, 136 Allama Ibn-e-Qadama, 154, 156, 192, 193, 203 Allama Ibn-e-Taymiyya, 43, 85, 92, 96, 101, 136, 156 Allama Kasani, 86, 87, 88, 89, 151, 187, 232, 233, 237 Allama Mardaovi, 193 Allama Marghinani, 98, 105, 136 Allama Nasfi, 99, 100, 136 Allama Noovi (RA), 94, 235 Allama Ram Puri, 70 Allama Ramli (RA), 185 Allama Sarkhasi, 42, 85, 90, 121, 139, 140, 165 Allama Seoti (RA), 49, 185, 202, 231 Allama Shami (RA), 133, 151, 164, 165, 180, 181, 182, 183, 187, 204, 251 Allama Syed Ahmed Al-Hasaee (RA), 65, 66 Allama Zaheli, 101, 136 Allama Zarrkani, 181, 234 Alllama Kasani, 138 Al-Mayar, 191, 202 Al-Majmu, 191, 192 Al-Uqood Duriryia, 205 America, 28 American Style option, 267 Arz, 73, 76, 147 Asman. See Saman Asman-e-Johria, 95 Asman-e-Urfia, 100

276
asset, 22, 23, 25, 26, 50, 51, 59, 66, 67, 70, 71, 72, 144, 175, 267 ATM Card, 256 Atta Bin Yasas (RAA), 124 Azd-ud-dolah, 37 brass, 37, 116 Bretonwoods Agreement, 32 Brettonwood Agreement, 161

C
Certificate of Debt, 66, 67, 69, 70, 74, 76, 78, 79, 80, 81, 82, 83, 141, 142, 143, 146, 147, 149, 243 Certificates, 261, 263, 264 Charge Card, 255 Charles de Gaulle, 32 Checks, 10, 13, 17, 24, 25, 80, 222, 223, 225, 227, 229, 238, 239, 240, 241, 242, 243, 254, 257 Type of, 225, 226, 239, 240, 254 Circulation of Money, 198 cocaine, 54 Commodity Markets, 135 Commodity Trading, 132 Constructive Ownership, 134, 175, 176, 177 Constructive Possession, 170, 232 Contract, 22, 50, 63, 71, 89, 97, 102, 105, 106, 107, 108, 109, 110, 111, 113, 114, 115, 116, 120, 121, 128, 129, 132, 133, 135, 140, 151, 155, 162, 165, 167, 169, 170, 171, 173, 174, 175, 181, 182, 183, 184, 187, 188, 189, 190, 191, 192, 194, 195, 201, 204, 205, 206, 207, 216, 218, 219, 230, 233, 234, 235, 237, 238, 241, 242, 243, 251, 254, 267 Conventional Bank, 170, 171 copper, 12, 37, 38, 77, 84, 116, 119, 120, 147 CPI (Consumer Price Index), 217 Credit, 13, 22, 24, 31, 60, 92, 93, 102, 105, 106, 109, 120, 124, 125, 126, 128, 134, 135, 139, 140, 141, 147,

B
Bada Al-Sanaa, 151 Bait-ul-Mal, 224, 248, 249 Bank of England, 69 bank run, 30 Banknotes, 29, 30, 31, 34, 35, 65 barley, 52, 59, 107, 115, 119, 215 barter, 9, 26, 40, 128 Base Year for calclulation of Price Index, 208, 209, 210 Basra, 36 Bay Muzabana, 217 Bay Surf, 98, 140, 142, 151 BayAina, 171 Bay-al-Dain, 269 BayMoajjal, 182 BayNisa, 149 BaySalam, 89, 134 BaySurf, 62, 97, 98, 99, 100, 101, 104, 105, 107, 108, 109, 110, 111, 112, 114, 115, 117, 118, 125, 136, 137, 140, 141, 142, 143, 145, 146, 147, 150, 152, 161, 163, 164, 243, 253 Bazanti, 38 Bazaria, 120 Bermuda Style option, 267 Bill of Exchange, 222, 223, 225, 226, 227, 243, 244, 245, 246, 247, 248, 249, 250, 253, 257, 270 Types of, 245 Bimettalism, 27 Bonds, 10, 69, 196, 222, 227, 258, 259, 260, 261, 262, 263, 264, 267

277
158, 159, 161, 162, 163, 164, 165, 167, 168, 171, 178, 187, 189, 190, 192, 193, 194, 195, 196, 201, 204, 206, 212, 216, 217, 220, 221, 222, 223, 225, 226, 227, 231, 233, 234, 235, 243, 248, 249, 254, 255, 262 Credit Card, 254, 255 Credit Money, 220, 221, 223, 225, 226, 227 Credit Sale, 182, 230 Credit Sale of Currencies, 166 Creeping Inflation, 197 Currency Exchange, 148, 150, 152, 162 Currency Notes, 29, 65, 66, 67, 80, 98, 146, 148, 149, 152, 158, 206, 207, 208, 212, 217, 218, 222, 223 Currency Trade, 176 102, 103, 106, 108, 109, 110, 111, 112, 114, 117, 118, 119, 121, 123, 135, 136, 137, 138, 140, 141, 144, 165, 185, 191, 207, 216 Dirham, 11, 12, 15, 19, 20, 21, 22, 23, 35, 36, 37, 38, 42, 46, 58, 60, 70, 71, 73, 84, 87, 88, 89, 90, 91, 92, 98, 99, 100, 102, 106, 111, 112, 114, 117, 119, 120, 121, 123, 136, 139, 140, 141, 144, 164, 165, 182, 185, 201, 202, 207, 214, 216 dirham Baghlia, 36 Dirham Beharja, 37 Dirham Stoqa, 37 Discounting of Bills, 244, 247, 248, 250 Disposable Income, 208 Dollars, 26 Dr. A. N. Agarwal, 222, 239, 244, 257 Dr. A. N. Agrawal, 244 Dr. Abdul Aziz Fehmi, 244 Dr. Hamd Misri, 23 Dr. Heflin, 223 Dr. Imran Ashraf, 47 Dr. Jayed, 239 Dr. Khalid Adnan Turkamani, 13, 39 Dr. Muhammad Suleman al-Ashqar, 78 Dr. Muhammad Zaki Shafai, 221 Dr. Usman Shabbir, 238 Drawee, 239, 244 Drawer, 239, 244

D
Damascus, 36 Dar ul Afta, Riyadh, 147 Daraham Mukssarah, 193 Dar-ul-Uloom Deoband, 142 date, 38, 41, 52, 107, 115, 119, 124, 129, 132, 135, 169, 171, 175, 177, 193, 214, 218, 219, 227, 239, 240, 243, 244, 245, 246, 247, 251, 252, 253, 254, 258, 267, 268 Debit Card, 255 Defense Saving Certificates, 263 deflation, 43, 44, 180, 199, 200, 201, 204, 206, 207 Demand Draft, 223, 257 Depression. See Kasad-e-Zar Deuteronomy, 49 diamonds, 70, 71, 127 Dinar, 11, 12, 15, 19, 21, 22, 23, 27, 35, 38, 42, 43, 59, 60, 70, 71, 73, 79, 86, 87, 88, 89, 90, 91, 92, 98, 99, 100,

E
Economic Recession, 77 Egypt, 37, 38 Endorsement, 221, 227, 228, 229, 243, 252 Types of, 228 England, 29, 30, 31 Europe, 28

278
European Style option, 267 Euros, 26 Exchange of Jewelry, 27, 98, 99, 103, 105, 111, 114, 118, 122, 124, 125, 126, 127, 128, 129, 131 Exchange Rate, 27, 28, 34, 39, 88, 161, 163, 166, 167, 168, 169, 176, 216 Exodus, 49 Ezekiel, 49 94, 95, 96, 98, 102, 120, 133, 134, 136, 137, 138, 141, 145, 146, 147, 148, 151, 152, 161, 164, 165, 188, 189, 190, 191, 193, 203, 204, 205, 206, 207 Fuloos Nafiqa, 92, 95 Future Contracts, 135 121, 139, 149, 181, 201, 122, 140, 150, 185, 202,

102, 123, 130, 111, 170,

G
GDP or Gross National Product, 148 Geoffrey Crowther, 69, 81 Germany, 16, 17 Ghala, 200 Glossary of Banking and Finance, 253 Gold, 11, 12, 13, 15, 24, 25, 27, 28, 29, 30, 31, 32, 34, 35, 36, 38, 43, 52, 57, 58, 59, 60, 62, 64, 66, 67, 68, 69, 70, 71, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 86, 88, 91, 92, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 107, 108, 110, 111, 112, 114, 115, 116, 117, 118, 119, 120, 121, 122, 123, 124, 125, 126, 127, 128, 129, 130, 131, 132, 133, 134, 135, 136, 138, 140, 141, 143, 145, 146, 161, 163, 165, 179, 182, 185, 202, 206, 207, 215, 234, 242, 243 Gold Bullion Standard, 29, 34 Gold Exchange Standard, 31, 32, 35 Gold Specie Standard, 34 Gold Standard, 31 goldsmiths, 28, 34, 65 Government Bonds, 260 Guarantee for Payment, 222

F
Fals, 84, 86, 87, 90, 92, 94, 95, 137, 139, 141, 161, 207 Fatah Al-Taqdeer, 151 Fatavee-e-Sadia, 72 Fatawee Rasheedia, 142 Fatawee Rizvia, 144 Fatawee-e-Sadia, 144 Federal Budget, 198 Fiat Currency, 24, 77, 78, 98, 186, 206 fiduciary money, 30, 34 Fiduciary notes, 33 Fiqh Al-Shafia, 191 Fiqh Shafia, 136 Fiscal Deficit, 196, 198 Foreign Exchange Bearer Certificates, 263 Forex Trading, 132 Forfeiture. See Inqita-e-Zar fornication, 46 forward buying, 82, 86, 89, 90 Forward Contract, 171 France, 32 Ftah Al-Qadeer, 164 Fuloos, 11, 12, 15, 36, 38, 43, 58, 60, 63, 64, 65, 70, 71, 74, 75, 76, 77, 78, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93,

H
Hadith of six items, 58, 61, 106

279
Hajjaj bin Yousuf Al-Saqfi, 36 Hanafi, 40, 57, 60, 85, 90, 98, 100, 102, 105, 111, 117, 136, 137, 151, 161, 162, 173, 174, 186, 194, 200, 206, 207, 233, 249 Hanbali, 85, 95, 98, 100, 102, 136, 156, 162, 182, 185, 186, 192, 194, 195, 200, 233, 249 Hasan Najfee, 222 Hashia Dasooti, 190, 201 Hashiah Takmalta Umdah Al-Raiya, 159 Hashsham bin Abdul Malik, 37 Hawala, 68, 108, 142, 143, 146, 149, 153, 223, 230, 234, 236, 237, 238, 240, 241, 242, 247, 248, 249, 252 Types of, 237 Hawashi Sharwani, 95 Hazrat Abdullah bin Marvan, 39 Hazrat Abdullah Bin Masood, 119 Hazrat Abdullah bin Omar (RAA), 216 Hazrat Abdullah bin Zubair (RAA), 36 Hazrat Abu Bakr (RAA), 123 Hazrat Abu Darda (RAA), 124 Hazrat Ali (KAW), 35, 154 Hazrat Fatima (RAA), 35 Hazrat Hasan Ibn-e-Ali (RAA), 154 Hazrat Ibn-e-Abbas (RAA), 156 Hazrat Ibn-e-Omar (RAA), 106, 108, 156 Hazrat Malkia, 85 Hazrat Mavia (RAA), 36 Hazrat Maviya Bin Abi Sufiyan (RAA), 124 Hazrat Moulana Ashraf Ali Thanvi, 66 Hazrat Moulana Rasheed Ahmed Gangohi, 66 Hazrat Mujahid (RAA), 123 Hazrat Omar (RAA), 36, 38, 61, 107, 108, 119, 120, 122, 124 Hazrat Omar bin Abdul Aziz (RA), 37, 39 Hazrat Omar bin Abdullah Bin Omar (RAA), 123 Hazrat Omar Bin Khattab (RAA). See Hazrat Omar (RAA) Hazrat Saeed Bin Masayab, 39 Hazrat Usman (RAA), 36 Hazrat Ziad (RAA), 36 Heraclius, 35 heroin, 54 Hiba, 108, 109 Hikmah, 54, 55, 56 Hundi, 152, 159, 162, 222, 227, 243 Hyper Inflation, 197 hyperinflation, 10, 16

I
Ibn Abi Shaeba, 154 Ibn Hajra Al-Haetmi (RA), 185 Ibn-e-Abbas (RAA), 154 Ibn-e-Al Qameem, 43 Ibn-e-Mamatee, 37 Ibn-e-Manzoor, 25 Ibn-e-Zubair (RAA), 154, 155 Ibra, 108, 109 Ibrahim Saleh Omar, 222 Ifrat-e-Zar, 180 Iftraq Bil-Abdan, 107 Ihsan, 155 Ijara, 22, 153, 154 Ijtihad, 174 Ilama Blazaree, 35 Ilama Ibn Najeem, 25 Ilama Ibn Tamiya, 19 Ilama Kasani, 23 Illah, 53, 54, 55, 56, 57, 58, 59, 60, 61, 73, 79, 81, 87, 91, 94, 95, 116 Imam Abu Hanifa, 85, 88, 89, 90, 93, 134, 154, 158, 181, 183, 188, 189, 190, 194, 195, 203, 204, 205, 207

280
Imam Abu Yousuf (RA), 85, 89, 90, 93, 182, 183, 184, 187, 189, 190, 192, 194, 195, 200, 203, 204, 205, 206, 207 Imam Ahmad (RA), 157, 160, 193 Imam Ahmed Ibn-e-Hanbal (RA), 57, 85, 96, 101, 154, 183 Imam Ghazali, 19, 21, 22, 49 Imam Ibn Al-Qeem (RA), 154 Imam Ibn-e-Sereen, 154 Imam Ibn-e-Tamiyya, 154 Imam Ishaq, 154 Imam Malik, 39, 59, 91, 92, 96, 140, 141, 148, 154, 155, 171, 183, 195, 224 Imam Muhammad (RA), 60, 85, 86, 87, 88, 89, 90, 93, 96, 112, 113, 134, 138, 148, 151, 182, 183, 184, 186, 187, 189, 190, 192, 194, 195, 233 Imam Qatadah, 154 Imam Shabi, Imam Nakhl, 154 Imam Shafii (RA), 59, 94, 154, 192 Imam Suri, 154 Imam Yousuf, 86, 88, 90, 138 Imdad Al-Fatawee, 159, 160 IMF, 31, 32 Indexation, 167, 213 Inflation, 10, 14, 32, 43, 44, 180, 196, 197, 198, 199, 200, 201, 204, 206, 207, 209, 217 Inkimash, 200 Inqita-e-Zar, 180 Interest, 9, 15, 16, 18, 20, 21, 23, 40, 45, 47, 49, 50, 51, 52, 53, 54, 56, 60, 133, 134, 157, 169, 170, 199, 206, 211, 213, 215, 216, 226, 247, 252, 254, 255, 256, 258, 259, 260, 261, 262, 263, 264, 270 International Currency Trade, 168 Iran, 35 Iraq, 37, 79 Isal, 159, 160 Islamic Banks, 170, 171, 226 Istaqraz, 149, 152, 153 Istifa-e-Dain, 241

J
Jamia-e-Sagheer, 49 Jamika, 248 Jar-e-Manfeat, 61, 155 Jeddah, 80, 171, 212, 249, 260, 266, 270 Joseph Schacht, 223

K
Kafalat, 160 Kalfat-e-Qard, 155 Karachi University, 47 Kasad-e-Zar, 180 Kashaf Al-Kana, 100, 136 Kawal Krishen, 13, 16 Khalid bin Abdullah Bajli, 37 Khalid Bin Waleed (RAA), 36 Kharasan. See Afghanistan Khiyar Shart, 104 Khiyar-e-Aeb, 112, 114 Khiyar-e-Roiyyat, 112, 113, 114 Khiyar-e-Shart, 112, 113, 114, 115, 137 Kifalah, 224 Kitab Al-Fuqaha, 89 Kufa, 36

L
Legal Tender, 29, 34 Letter of Credit, 168, 169 Leviticus, 49 Loan. See Credit Ludwig Von Mises, 14, 16, 17

281
Lyndon Johnson, 32 Muhammad bin Al-Fadl, 85, 90 Muhammad Bin Al-Fadl, 96 Muhammad Ibn-e-Sereen (RA), 119 Muheel, 236 Muhtal Alaeh, 236 Munawala. See Endorsement Municipal bonds, 260 Muqees Alia, 79 Muratla, 103 Musarafa, 100 Musarfa, 103 Musharakah, 86, 263 Musharakat, 90 Muslam Fieh', 232 Mustaajir, 158 Mutual Consent, 164, 166, 226

M
Maroof Ba-Aziz, 142 Ma'dodat-e-Mutaqarba, 86 Maghni Al-Mahtaj, 101, 136 Majma Al-Fiqh Al-Islami, 171, 249, 266, 269 Makh Al-Jaleel, 191, 202 Maliki, 60, 90, 91, 103, 137, 140, 141, 156, 162, 182, 184, 190, 192, 194, 200, 234, 235, 249 Mansoos, 174 marijuana, 54 markup, 45, 48, 50, 52, 56, 60, 72 Marvan Bin Hukum, 36 Measurable items, 71, 73, 144, 187, 203 Mhutal Bihi, 236 Minhaj Al-Talibeen, 235 Misl, 182, 185, 186, 189, 203, 205, 206, 207, 212, 213 Money Exchange. See Bay' Surf Money Order, 158 Moulana Abdul Hai Lakhnavi, 74, 145 Moulana Fatah Muhammad Taib (RA), 159 Mubadala, 103 Mudarabah, 82, 86, 263 Mudarabaht, 87, 90 Mufti Misr Muhammad Khatir, 22 Mufti Muhammad Shafi (RA), 47, 49, 66 Mufti Muhammad Shafi Ludhyanvi, 150 Mufti Rasheed Ahmad Ludhyanvi (RA), 148 Mufti Taqi Usmani, 13, 16, 18, 21, 23, 44, 49, 53, 54, 56, 68, 78, 90, 146, 150, 151, 152, 161, 167, 174, 218, 242, 243, 244, 249, 250, 251, 258, 262, 263, 265, 267, 269

N
Naikl, 77 Naqd, 11, 101, 102, 126 Naqdain-e-Tasnia, 100 natural money. See Saman-e-Khilqi Neoclassical, 196 Nisa, 62, 73, 87, 105, 143, 144, 149, 150, 152, 161, 162

O
Omar bin Huberah Wali, 37 Optional Condition. See Khiyar Shart Options, 267, 269 Types of, 268

P
Pakistan, 9, 120, 136, 153, 161, 162, 218, 245, 253, 257, 259, 260, 264, 267 Paper Note. See Currency Notes

282
Paris, 38 Pay Order, 257 Payee, 239 Physical Possession, 108, 114, 115, 118, 135, 176, 177, 234 Plastic Money, 254, 255 Population, 198 Post Office, 158, 159, 160 pound sterling, 31, 191 Price Index, 208, 217 Prize Bonds, 25, 263 Professor Crowther, 13 Professor Manzoor Ali, 41 Professor Muhammad Manzoor Ali, 17 Promise, 66, 69, 127, 129, 170, 171, 173, 174, 175, 221, 252, 254, 268 Promissory Note, 223, 252, 253, 254 Prophet Muhammad (SAW), 35, 51, 61, 106, 154, 156, 158, 213, 214, 215, 216, 217, 224, 231 Proverbs, 49 Psalms, 49 Psychical Ownership, 140 Purchasing Power, 81, 179 Riba Al-Jahiliyya, 47 Riba Al-Qard, 47 Riba An-Nasa, 62, 75 Riba An-Nasiyah, 47, 62, 72, 145, 151, 152, 161, 249, 261 Riba Bil-Quran, 47 Richard Nixon, 32 Riyadh, 76 Riyal, 72, 77, 144, 153, 162 Robeson, 223 Rozatal Talbain, 191 Running Inflation, 197 Rupees, 26, 162

S
Sadaqa, 108, 109 Sahib-e-Itar Al-Hadiya, 174 Saif-e-Mudahhab, 116 Saif-e-Mufaddad, 116 Salahuddin, 37 Salam, 89, 90, 134 salt, 26, 52, 107, 119, 215, 216 Saman, 43, 59, 63, 64, 70, 71, 74, 76, 82, 83, 85, 86, 87, 88, 90, 91, 93, 94, 95, 98, 100, 101, 102, 103, 106, 115, 117, 118, 121, 136, 138, 140, 141, 145, 165, 183, 188, 189, 206, 223, 242 Saman-e-Istelahi, 206 Saman-e-Khilqi, 63, 98, 99, 100, 102, 103, 105, 136, 142, 145, 146, 164, 165, 206 Saman-e-Mutlaqa, 63 Saman-e-Urfi, 98, 146, 164 Samaniat, 59, 63, 73, 74, 75, 76, 79, 81, 83, 86, 87, 88, 89, 90, 91, 93, 94, 95, 96, 100, 138, 145, 147, 186, 188, 189, 206 Samaniat-e-Ghalba, 94, 95 Samaniat-e-Johria, 94

Q
Qazi Abu Yaali Hanbali (RA), 233

R
Rakhs, 200 Ration Card, 225 Riba. See Interest, See Interest, See Interest Riba Al-Bay, 48 Riba Al-Fadl, 48, 52, 57, 59, 60, 62, 72, 73, 75, 81, 105, 112, 118, 145, 213, 249 Riba Al-Hadith, 48

283
Saudi Arabia, 77, 78, 153, 162 SDRs, 31 Second World War, 17, 32 Securities, 220, 264, 267 Shafii, 59, 94, 95, 98, 101, 102, 136, 154, 162, 173, 182, 183, 185, 190, 192, 200, 234, 235, 249 Shams Al-Aema Al Sarkhasi, 96 Shams Al-Amea Al-Halwani, 96 Shares, 259, 264, 265 Sheikh Abdul Razzak Afifi, 145 Sheikh Abdullah bin Bassam, 77 Sheikh Abdullah bin Salman, 76, 147 Sheikh Abd-ur-Rehman Bin Sadee, 70 Sheikh Ahmed al Bana, 78 Sheikh Ahmed Khateeb, 77, 147 Sheikh Mehmood Ahmed, 51 Sheikh Mubarak Ali, 13, 44, 222 Sheikh Salman Al-Hamdan, 72, 76, 144 Shirkat, 47, 87, 88, 89, 96 Shrah Al-Majla, 203 Shrah Al-Zarqani, 201 Shrah Tahavee, 120, 164 Shrah Waqiah, 159 Sick Money, 37 Silver, 11, 12, 13, 15, 24, 25, 27, 28, 29, 31, 33, 34, 35, 36, 37, 38, 43, 52, 57, 58, 59, 60, 62, 64, 66, 67, 68, 69, 70, 71, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 86, 88, 91, 92, 95, 96, 97, 98, 99, 100, 101, 102, 103, 107, 108, 110, 111, 112, 114, 115,116, 117, 118, 119, 120, 121, 122, 123, 124, 125, 126, 127, 128, 130, 132, 133, 134, 136, 138, 140, 141, 143, 144, 145, 146, 163, 165, 179, 182, 185, 189, 202, 206, 207, 215, 234, 242, 243 Siraj-ul-Muneer, 50 Special Deposit Certificates, 263 Spot exchange, 62, 67, 149, 150, 163, 169 Stagflation, 197 State Bank of Pakistan, 148, 267 Stockholm Bank of Sweden, 29 Strike Price, 267 Suftaja, 51, 153, 154, 155, 156, 158, 159, 160, 223 Sukuk, 221, 224, 262 Supreme Court of Pakistan, 18 Suqoot-e-Khatr-e-Taqreeq, 154, 159, 160 Surf, 97, 98, 100, 101, 102, 103, 106, 107, 109, 110, 114, 115, 137, 140, 141, 142, 143, 146, 150, 164 swine, 55 Syed Muhammad Baqar, 146, 240 Syria, 37 161,

157,

156, 105, 136, 147,

T
Tabaria, 36 Taburru, 155 Tafreet-e-Zar, 180 Tagauyyur-e-Saman, 155 Takmla Ftah Al-Malhum, 242 Talqi-bil-Qabool, 231 Tanveer Al-Absar, 88, 151 Tasrruf. See Musarfa Tatimma Muhtar, 183 Tatoor Al-Naqood, 102, 136, 163, 173 Tavaa, 236 Taxation, 198 Tazakhum, 200 Tazheer, 221, 252 Texal, 38 Treasury bills, 69, 259, 260 Trotting Inflation, 197 Tuhfat-ul-Fuqaha, 89

284
Two Way Promise, 168, 170, 171, 173, 174, 175 Weighable Items, 58, 59, 71, 73, 144, 187, 203 Weighted Average in Price Index Calculation, 209 Wheat, 26, 38, 41, 52, 59, 84, 107, 110, 112, 115, 119, 132, 137, 177, 187, 203, 208, 209, 212, 213, 214, 215, 217, 230 Wodood, 165 Wujoob, 165

U
Urooz (Plural of Arz), 73, 74, 76, 79, 80, 81, 82, 83, 88, 89, 94, 143, 147 Usury, 15, 36, 45, 46

V
Vietnam War, 32

Y
Yazeed bin Abdul Malik, 37 Yousuf bin Omar, 37

W
Wages in inflation, 199, 213, 217 Wakala, 240, 247, 250, 251, 252 Wakeel, 250 Wales, 29 Waqf, 248 Warrants, 266, 267, 269 Wastage in Jewelry Making, 130

Z
Zahir Barqooq, 84 Zakat, 35, 40, 68, 70, 73, 75, 76, 78, 80, 82, 147, 175, 242, 265 Zarr-e-Istilahi, 186