Shariah Opinion (Fatwa)

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contract 190 shariah 125 salam 112 finance 111 price 106 contractor 83 istisna 78 permissible 78 sale 77 kuwait 71 islamic 67 source 63 fatwa 58 building 55 fatwas 49 project 47 transaction 45 contracting 39 customer 39 deferred 39

DOCUMENT KEY POINTS

this endeavor also comes in a bid to introduce islamic economics and transactions to english speaking individuals and communities parallel with recent rapid expansion and development in the field of islamic banking and in conformity with the general objective of land reconstruction and development as well as dissemination of islamic principles and values in economics finance
introduction praise be to allah the lord of the universe peace and prayers be upon the righteous imam our prophet and messenger mohammad peace and blessings be upon him his family and companions

in presenting this publication to all al baraka banking group would like to thank doctor ahmed mohieddin ahmed director of research development for compiling sorting and indexing the book s material and doctor abdul sattar abughuddah for revising the same
this book is issued as part of the series of computerized shariah opinions fatwas program whereby the series had covered shariah opinions fatwas of murabaha mudharaba and musharaka e

third in the istisna contract it is permissible to defer the payment wholly or make it in pre fixed installments and on specific due dates

q shariah opinion is sought for the question submitted by the company concerning the possibility of using istisna to invest its funds and ways and means to utilize this contract which has become a necessity by modern economic investment practices what are the forms and modes accepted by shariah in dealing with this contract answer istisna is permissible according to majority of muslim jurists

after thorough deliberations the shariah board has issued the following resolutions in this regard first istina contract is permissible for any manufactured product that have particular specifications whether it is of use or consumer items provided that the manufactured item is sufficiently described in istisna contract to the extent that avoids ignorance and ambiguity and a particular due date is set for its manufacturing delivery
nowadays istisna a has grown in importance its scope and applications have varied and the need for it grew proportionate to contemporary industrial progress and with the diversification made in the field of industry in this century and the past century which prompted the need for new methods of investment compatible with shariah

balso the company may purchase and sell pursuant to the previously stated manner fungible goods and commodities which are common in the market that can replace each other in use such as chairs and items of international standard in addition to items which are not of international standard but are manufactured in mass production for use

in both cases it shall reach an agreement with the other party the seller who is the manufacturer sani or the purchaser who is the requester of manufacturing mustasnu provided that the price is paid in advance deferred or in installments
it is also entitled to conclude a contract as a purchaser with any other party to manufacture the quantities which it undertook pursuant to the first contract and with the same specifications

q please advice shariah opinion on istisna contract presented by the company copy attached answer after duly studied by shariah board in accordance with the text attached to this resolution the contract is approved provided that certain amendments be made to ensure its shariah compliance and avoid being a fictitious contract which transforms it into a pure finance contract and not istisna contract as per the resolution no
q what is the shariah opinion regarding the question put forward by a company regarding permissibility of purchasing six boeing aircraft as per a purchase contract for a specific value and in turn al rajhi company pays part of the purchase amount at contracting with boeing company

in case aircraft price amount exceeds the price with which olympic purchased from al rajhi the excess would be returned to olympic and if it is less than the amount claimed by al rajhi from olympic al rajhi would revert back to olympic answer shariah board has no objection that al rajhi company to execute the mentioned transaction if the situation is identical to what has been described in the question provided that al rajhi company would bear all liabilities of the owner such as corporeal property ayn damage maintenance expenses and property insurance until its delivery to the purchaser
in case of non interest of olympic to complete its contract with alrajhi company and its rejection of receiving any of the six aircraft at the time of its delivery al rajhi being an agent for olympic as per the sale contract of aircraft rejected by olympic will receive

the final quantity of the metal say would be tons to be delivered after days ie on to recognized warehouses in sweden for dollars per ton as a refinement cost to be paid at the time of al rajhi company receiving the refined metal
company due to the fact that it is a recognized broker at london exchange considering that al rajhi company is not allowed to deal directly with the exchange

so what is the shariah opinion regarding this matter answer it is permissible for kuwaiti finance house to conclude a contract for construction to erect a building on a land owned by some body at his expense after making an agreement with the owner to pay a lump sum for this work and to give earnest money urbun

safeguard rights of kuwaiti finance house whether by means of mortgage guarantee or otherwise
source shariah fatwas in economic issues book a part and a kuwait finance house fatwa no

what is the shariah opinion regarding this matter can this transaction be considered deferred sale and that these installments are considered as payments of deferred sale and not as lease payments noting that the building remains under the ownership of kuwait finance house till all installments are fully paid answer there are two permissible ways for the provision of a building to the lessee who intends to own it in the future first either the building is leased for a particular period and that a promise is made to sell it for a price to be agreed upon after the end of the lease period
q if kuwait finance house kfh is approached by some body who requested to build a housing unit or business center on a plot of land that belongs to it kfh provided that he is obliged to pay the amount which he and kuwaiti finance house agreed upon in advance as annual rental installments for the premises on the condition that kuwaiti finance house enables him to use the building as soon as it is completed and the ownership of the property is transferred to him after he pays the agreed installments

nd the deferred sale shall be made according to a contract of istisna where the price is paid in installments and pledging the sold building as a non possessory lien but in its property register so that the pledge is not relieved unless the price is paid in full
source shariah fatwas in economic issues book part and kuwait finance house fatwa no

q an international trading company has requested the islamic bank finance exportation of phosphate ore produced in morocco to romania and to finance processing of such raw materials in romanian plants to turn them into fertilizers and other stuffs necessary for agriculture and industry

q what is the shariah opinion in the case of a bank that concluded an agreement with a customer to build a house or store on a land owned by the later for a cost plus pre determined profit to be negotiated with the client considering that the construction shall be carried out by a contractor or a contracting company with which the bank agrees and the bank will add a pre determined profit to the contractor s price answer according to shariah opinion the cost plus profit formula is valid when a bank purchases the building materials and sells them under murabaha transaction
however the foresaid transaction is not in conformity with murabaha transaction but can be processed under istisna contract where the bank agrees with the client on the final price without spelling out costs or profits then the bank may conclude a separate agreement with a contractor to carry out construction

is it also allowed that the engineer could deliver finished works to the client who is the owner of the factory third is it allowed that the purchase promiser to sign invoices for any phase of the accomplished works along with the consultant before payment by the bank to the contractor and release the bank of any future liability fourth in this case is the bank responsible for any invisible defect
first is the above mode shariahcompatible and what are the controls to be considered second due to lack of experience of the bank in that field is it permissible to appoint a consultant engineer to receive completed works from the contractor and that the contractor agrees that the engineer would approve payment of partial due amounts

answer first for any istisna contract to be intact it should be specified and hence the islamic bank is permitted to enter into istisna contract provided that it will be responsible for any invisible defect and also provided that guarantees are taken to ensure the right of the islamic bank to revert to the contractor in case of occurrence of any damages
second the islamic bank is permitted to delegate an agent such as a consultant engineer to receive the completed works from the contractor

pounds but because he lacks provision of funds immediately is it allowed for the bank to enter into a contract with the mentioned contractor to build the warehouse in return of the specified price and agreed upon specifications and then sell the warehouse on murabah bargaining or on deferred basis to the above factory owner answer shariah board see that bank management may agree with the customer for building the warehouse as per specifications specified by client for fixed amount
if the bank opts to sign a separate contract with the client to represent him in supervising the contractor s implementation of contract then no shariah objection on that provided this has no relation with the bank contract entered with him regarding the warehouse or the bank contract with the contractor

the bank agreed to the deal subject to a term that it receives as profit second owner of a piece of land applied to the bank to finance a building on that land
a murabaha sale is that when the buyer sells the goods for its original price on condition that the second buyer will pay him a given profit

the acceptable practice is for the bank to estimate the cost and add a profit to it then to make a contract with the owner to build the said house for a given sum as profit for the bank either to be paid on completion or part of it to be paid in advance and the balance on completion or in installments as agreed to
there is nothing preventing an increase in the price where payment is in installments and there is also nothing wrong with a difference in price where there is a difference in the time of completion of the job

so is it permissible during negotiation phase and before contracting to tell the project owner that the cost of the project construction shall be less if he pays cash down however if we paid the project expenses up to completion he pays back within a year term the project cost shall be so plus an extra sumthe cost of a residential building is
kuwaiti dinar including the cost of execution supervision management of the project as well as utility provision in case the customer pays on spot direct disbursement however in case of deferred payment and as kuwaiti finance house assumes project finance the cost shall be kuwaiti dinar for one year term and kuwaiti dinar for years term e

answer it is permissible in forward contracts to tell the customer of the various prices according to term during negotiations provided that the transaction shall be based on a specific price of contracting
in consideration of the accuracy of terminology and expressions of contracting the shariah board has made some amendments to redraft the question

as soon as the bank approved the application for istisna the contractor started to execute the project before signing the contract with the bank is it permissible for the bank to repay to the contractor the expenses incurred by it after the initial approval but before the execution of the contract answer in principle execution of terms and conditions of the contract start from the date of its signature pursuant to time schedules stated therein but it is permissible for the bank to waive its rights in that respect and pays the contractor for the works done by it before signature of the contract if the bank sees remarkable benefit in such agreement
expenses made after initial approval question is it permissible for the bank to pay to the contractor for works achieved by the later after the initial approval of contracting but before the actual signature of the contract a client submitted an application to the bank to finance a building under istisna the bank approved the application on

sale of a product under istisna contract before its reception q what is the shariah opinion regarding the sale of unfinished housing apartments but building materials for finishing them are available as well as land on which they will be constructed besides building plans and designs are also available answer the concept is permissible in principle as the transaction is regarded istisna which is a shariah compatible contract
however a detailed study should be made for the clauses of the contract on which parties would agree

publications deferred in delivery as a subject matter of istisna contract question is it permissible to purchase publications with agreed upon specifications deferred delivery and advance payment considering that the advanced price should be reduced in this type of purchases answer it is permissible to purchase publications according to agreed specifications and delay their delivery for a pre determined date
however it is permissible here to make advance payment akin to salam as well as it is permissible to defer it as it involves manufacturing which subsume under istisna contract where advance payment is not a condition like lease ijara transaction

this condition states that second party delegates the first party dubai islamic bank branch to totally supervise management lease and collection of rent value for the whole property and its components for the total rent revenues in lieu of management and deposit the said rent in the second party account no

in certain cases the customer asks the bank to agree with the consultant and pays its charges in return of follow up of execution is it permissible in such case that the customer agrees with the consultant to be its agent in the follow up of execution in accordance with specifications in return of bearing its charges answer shariah board studied whether it is permissible for the customer to agree with the consultant to supervise construction of the building which is constructed by the bank for the customer and sell it to him on deferred sale basis
since government regulations stipulate the necessity for a consultant to supervise construction and to ensure conformity of drawings plans and technical specifications and that the consultant is paid a specific charge agreed upon between the two parties for its work as per a signed contract shariah board see no objection for agreement between the customer and the consultant and that the customer bears its charges

is it permissible for such person to undertake building by himself in his capacity as a contractor and after construction completion to re purchase the building from the bank for a higher deferred price answer this case involves that istisna requester to manufacture by himself what he requested to be made for him as the case of a land owner who asked the bank to build for him an investment housing building and the bank agreed is it allowed that such a land owner who is also a contractor to build the building for an agreed upon amount and after construction completion to re purchase the building from the bank for a higher amount
upon agreement of the bank to that request the land owner who is also an owner of a contracting company applied to the bank to undertake by himself the construction of the building in accordance with specifications as per agreed upon amount with the bank

he explained that he is ready to pay all additional su miss is it permissible to undergo some changes in the contractor s contract answer it is permissible to change some conditions or add some obligations between kuwait finance house and the owner with no effect on kfh and the contractor unless kfh and the contractor later agree in this regard
istisna applicant requested to make changes that lead to increasing the cost q after completion of contracting with both parties each independently the owner requested us to make some changes on design or specifications which cost us additional amounts of money

bearing the consequences of the unintentional drop of some clauses given to the contractor question if we discovered that there were some clauses we forgot to deliver to the contractor unintentionally as we handed him specifications and plans for quotation of prices
in this case who shall bear the cost of adding or applying such clauses on the building answer kuwait finance house shall bear the cost resulting from this unintentional omission in the contract

transfer of istisna contract to a third party question is it permissible to execute a sale contract with a governmental department after the tender is awarded considering that the required commodity is not yet possessed but there is a promise to purchase from the exporter or producer to import possess and hand the commodity over answer it is not permissible to execute a sale contract for goods owned by the seller at contracting time which were not manufactured unless in case of salam which is a sale of products under liability with instant payment of all price
the same applies if the product is manufactured by the seller or otherwise for example if it is purchased ready manufactured then sold it to the one who contracted with him before provided it was based on specifications

addition of government stipulated conditions after signing a contract question in case a government authority stipulated adding a new provision to its general provisions for construction of buildings after a contract with a contractor subcontractor was signed who will bear the additional costs me or the owner answer an article may be added to contracting agreements stating that in case of any new regulations enacted by an official authority which are not included in the original contract and involve financial commitments such additional costs should be borne by the owner
source shariah fatwas in economic issues book part and kuwait finance house fatwa no

the bank management would like to know shariah board opinion on fixing partnership musharaka shares for each of the customer and the bank and also distribution of profits of the transaction answer there is no objection for executing the contract as above stated and profits of the transaction should be distributed as follows first the bank and the customer should agree upon a specific share of profits for the customer a fixed rate of the total profits in consideration of implementing the works required for the transaction as per contract
general provisions of contracting agreements question please advice shariah opinion on the following the bank provides necessary funds for implementing a project awarded to one of its customers

the bank management would like to know shariah board opinion on mechanisms of profits distribution between the bank and customers answer there is no objection for the bank to enter into agreement with professionals and technicians as above stated and profits distribution would be as follows first the bank and the customer agree upon a share of profits fixed rate of total profits for professionals or craftsmen who undertake management and operation
question please advice shariah opinion on the following the bank establishes a hospital a factory or a workshop or any facility by providing funds and then entrusts specialized professionals or technicians to assume management and operation of the project

legitimacy of subcontracting question in case a company owns certain equipment and it contracts with kuwait finance house for erection of such equipment against an agreed upon amount and on the other side kuwait finance house would contract with a contractor for erecting such equipment
is this transaction shariah compatible answer this transaction is shairah compatible since there is distinct separation of the two contracts as above stated

is it allowed after we bid to project owners that we negotiate with subcontractors to make us discounts without affecting the owner price answer if the two transactions are independent ie no relation between the agreement with the owner and that with the subcontractor in this case any discount in contractor s price is totally entitled to kuwait finance house
discounts acquired by the bank from the subcontractor question in certain cases we are required to implement specific works for customers and in our turn we fetch offers from subcontractors to execute such transactions and we specify our quotations in light of these offers

is this discount an acquired right for kuwait finance house which is the initiator for such action or is it a right of the main contractor who is committed before kuwait finance house to complete works answer the relation in this respect is between kuwait finance house and the main contractor with whom the house signed the main contract
as such subcontractors came to know that their entitlements would be paid by kuwait finance house and hence settlement of their dues is guaranteed at completion of works they reduced their offered prices by

in consideration that the customer has informed us about the additions after completion is it permissible for kuwait finance house to pay the value of additional works to the contractor and reimburse them from the customer considering that we already finalized the deal with the customer answer if the contract signed between kuwait finance house and the contractor stipulates that if there is a necessity that the price should be as stipulated in the contract the kuwait finance house should pay to the contractor the cost of the new works and requests the customer to pay it
as the contractor is carrying out works some new additions not stipulated in the original contract emerged the customer whom we dealt with instructed the contractor to execute the additions and the customer shall inform kuwait finance house accordingly considering that all additions were carried out in accordance with specifications and previous conditions which will result into difference of price between previous works and new additions

prevailing customs and traditions to determine that case and the customer pays the extra sum and in accordance with the profit agreed in the contract signed between the kuwait finance house and the customer
source shariah fatwas in economic issues book part and kuwait finance house fatwa no

the question is first is it permissible for the air conditioning company to raise the contract value after its execution and completion of sale second if it is permissible is it allowed for kuwait finance house to request the purchaser the one whom kuwait finance house sold the commodity to re pay the excess amount answer it is not permissible to change the contract unilaterally after its execution and fixing of price
if we could not complete our works due to circumstances related to the site for a year from the contract execution we shall be entitled to request change of the contract value to cope with the successive price hikes and payment of full contract value

kuwait finance house may also make a claim against the purchaser under murabaha demanding the later to pay the difference as it agreed on murabaha on cost basis but it shall deduct the part of compensation paid by the contractor because the contract conditions stipulate that murabaha is based on actual cost so if it received penalty compensation from the contractor the cost shall be reduced

what is the shariah opinion with regard to this matter answer with regard to entering into an operation with an owner who failed to continue its contract with a previous contractor it shall be conducted as follow first terminate the transaction with the first contractor as per status quo

the committee recommends that all necessary measures be taken to safeguard rights of kuwait finance house by verifying solvency of the owner and its ability to pay on due date and provision of sufficient collateral to guarantee rights of kuwaiti finance house
house is not obliged to deal with the same contractor however it is committed to achieve works through any means then kuwaiti finance house is entitled to reach an agreement with the same contractor or any other contractor

the bank replaces a contractor in a partially executed contracting question how can kuwait finance house enters into a construction contract previously started by another party and can a contract be made for the remaining period answer for the kuwaiti finance house to enter into an operation which the previous contractor failed to complete the whole operation should be liquidated and the rest of contracting between the customer and the contactor to be terminated
then a construction contract should be made for the remaining works and the kuwait finance house is not responsible for any debts due to the previous contractor

it is permissible to award the project for the same administration if the execution cost is lower than offers submitted by other companies considering the interest of kuwaiti finance house

is it permissible for this person to construct the building for the said bank considering that he did neither borrow nor lend interest based loan from the bank answer it is permissible for him to build a housing unit for the bank if he did not deal with the bank in an interest based manner as it is reported that the prophet had dealt with the jewish though jewish deal extravagantly in usury but the prophet dealt with them in a safe and proper non usury manner
request of usury based banks to construct institutions of their own question is it permissible for a muslim who has a contracting office to construct a building at the request of a conventional usury based bank

on the other hand the company which is the project owner agrees with kuwait finance house to pay the latter the contractor s remuneration which is paid already by kfh in addition to a determined percentage answer this transaction is not permissible as this determined percentage is paid for the term and is considered as compensation for financing so it is riba usury

after determining the total cost of items the credit price is calculated so that the price of both cash and credit is clear so is this practice permissible from shariah point of view answer it is permissible to make some changes or additions on the subject matter of the contract whether the price is spot or deferred price provided that price of change or addition should be set before implementing the change or addition such that price is clearly defined whether spot or deferred
grant the customer the option to pay cash or on deferred basis question an agreement is underway between us and the general corporation of housing to build housing units for citizens provided that some changes and additions to be executed on the standard government housing unit

dinar against contractors as penalty for delay because they delayed the execution and delivery of contracted projects on their due dates should kuwait finance house be entitled to all these penalties whether less or more than the actual amounts answer with regard to amounts withheld from contractors in observance of delay penalty clause it should be considered whether it is equal to the actual damage or less than it then in such case it is the right of kuwait finance house but if it is more than the actual damage the difference should be refunded to the said contractors
the bank s right to obtain delay penalty question real estate projects administration has entered down in its books

second in case no tangible actual damage exists like if a contractor is responsible for constructing a branch of kuwait finance house has delayed handing over the branch and we do not have a rented branch in this area so that we can charge the actual damage as the rent which we paid to the rented branch

in case of violation and consequent application of penalty clause which results into compensation the recompensed party should receive the amount stated in the contract even if the actual damage is less
source shariah fatwas in economic issues book part and kuwait finance house fatwa no

the land is ready as well as plans and designs the final value of the project capital is specified and the public may look into the details of the project
bank entering into a real estate project as a partner participating by land and as project manager question what is shariah opinion on the possibility of offering an investment real estate project to the public before commencing building

real estate finance for building and purchasing houses q after duly reviewing researches received by figh academy regarding the subject of real estate finance for building and purchasing houses and deliberations on that matter answer it is decided that first house is a basic human need

houses may be owned on istisna contracts basis being considered as a necessity in such a way that houses to be purchased before building as per the accurate description avoiding ignorance and ambiguity leading to dispute without necessity for spot payment of the whole amount
source organization of islamic conference islamic figh academy resolutions and recommendations of the council of islamic figh academy st session to eighth session resolution no

on the other hand the construction would be implemented by a contractor or a company to be agreed upon by the bank while the bank would add a specific profit over the price to be received by the contractor answer shariah opinion in this respect is that calculation of cost plus profit is permissible if the bank purchases construction materials and sells them on murabaha basis
q shariah opinion is sought regarding a case of the bank contracting with one of its clients to build a house or a store on a land owned by the client on cost plus specified profit basis to be negotiated with this client

bahrain islamic bank proposed following steps to implement the project first the bank would purchase part of the university buildings equivalent to the remaining amount of the project capital ie fifty million us dollars which is one third of the amount

the sale with be at market value jointly agreed by the two parties at sale and not on nominal value except if the nominal value is equal to the market value at the time of sale
right to dispose of building which they purchase by sale lease or grant and other modes of permitted disposal second to purchase part of the university buildings with the value of million us dollars third to lease buildings to the university

finance jointly with a usurious financer question what are the shariah controls governing entry into partnership musharaka with a party who is a loan borrower with interest in a real estate ownership answer the proposed mode for such a cooperation may be supported by shariah controls to be applied as follows dallah real estate to enter into musharaka contract with another party which is not an affiliate of dallah in order not to be responsible for his borrowing with interest if it happened
dallah may provide its partner with an external chance totally separate from the borrowing subject ie dallah to issue an obligatory offer on itself to purchase the share of the borrower within a specific period gradual diminishing musharaka

third no mortgage on the joint real estate for the benefit of the usurious loan whether on all the real estate or the other party share because the real estate is commonly owned so the mortgage would also be common including part of dallah share
in summary this mode of cooperation is limited as follows first dallah should not enter into a borrowing transaction whether as a borrower or guarantor of a usurious loan

q why did the author of al mi ar differentiate between commodities and other liabilities if dirhams no longer exist for any reason what so ever is there any difference between borrowing salaf and sale contracts or marriage contracts or lease ijara contracts answer muslim jurists differed over this issue
differentiation between borrowing and other obligations may be due to precautions against usury riba because borrowing may probably lead to usury

q some of the bank s clients in el gadarif the agricultural region of sudan who are crop merchants contacted the bank to deal with them as a partner in dealings in salam sale and purchase transactions of crops before harvest ie to agree on specified binding price on condition that the crop is delivered at harvest time
it is a kind of sale where delivery of the sold item which is called muslam fih is deferred while the price is paid in advance which is called ra s ul mal

a salam sale of dates must not be tied to dates from specific palm tree or specific orchard of date pal miss at the time when the prophet pbuh came to madinah the inhabitants of madinah used to make salam sales of fruitage of specific date palms but the prophet pbuh forbade that practice
so it is prohibited to contract salam sale for dates at a time when dates are known not to be available for delivery or where dates are very rare at the time

the majority of the jurists do not stipulate the condition of the actual presence of the goods subject of the salam sale at the time of the contract or after it before the time specified for delivery
there is no difference of opinion amongst the jurists that the salam is permissible in the case of measurable and weighed objects on condition that the kind description and quality is specified as well as the place of delivery

q the bank purchases a specific commodity to be delivered later and pays its price on the spot or sells a commodity to be delivered later and receives its price on the spot is this transaction permissible answer the conference has discussed the question of salam on the light of the terms and conditions set by muslim jurists fugha as a deferred sale of a commodity for an advanced price fully paid on spot ie it is a sale in which price is determined and actually paid in advance at contracting and the delivery of the sold item is postponed for a date in the future
the conference recommends that all rules conditions governing salam sale as determined by shariah shall be strictly followed particularly in dealing with salam contracts

previous actual possession replaces the currently required possession because they are both considered as possession of guarantee qabd al dahman as loan is guaranteed and the price is also guaranteed in the liability of salam seller so it is referred to in the agreement executed between the two parties that salam price is received at contracting and the date of the salam contract commencement is the date of the contract and not the date of delivering the previous loan amount which precedes the contract
since the benevolent loan qard hassan is already advanced to the debtor it is permissible to enter into a salam transaction and the salam purchaser agrees with the salam seller that the received loan amount be salam price based on the argument that item on liability is akin to the item possessed and under control except in case of the company

the price of the purchased commodity muslam fih q is it permissible to determine the price of the commodity muslam fih in salam sale according to rates prevailing at a particular market or for instance at a market price less pursuant to the market rate at date of delivery or is it imperative to entirely fix the price right in the beginning answer first the basic principle in all salam sales is that price between the contracting parties should be agreed upon and fixed when they enter into an agreement
source resolutions and recommendations of al baraka symposia on islamic economy department of research development dallah al baraka group a al baraka nd symposium a fatwa no

q a client who has some crops which blossomed and about to be harvested likes to sell the produce on november at the prevailing rates of el gadarif bourse on the same day is the uncertainty and ambiguity of the contract removed by fixing the date and determining the price according to rates of the said market bourse ie el gadarif considering that the sale is a salam sale and noting that the two parties have agreed on the specifications of the crops answer salam is a sale contract whereby the price is advanced and the sold item which is described in liability is delivered later
second if the bank is contented that the purchased crops are absolutely non existing the bank has the right to terminate the seller s agreement and cancel the contract and the seller shall in this case refund the amount paid by the purchaser the bank without any increase or recompense

we strictly affirm that the bank shall not get recompense for the seller s default to deliver the sold item as this condition is essential in salam sale
any how the bank s administration pursuant to data available should take the suitable decision to protect the bank s interests

the sale of a commodity muslam fih in a salam sale before taking possession of it q is it permissible to sell a commodity muslam fih before taking actual possession of it if it is not permissible then is it allowed for the purchaser rabu salam to sell against advance payment in a salam sale relying on what he will receive in the future and without connecting in contract between what he sells against advance payment and what he will receive later is it permissible for the purchaser rabu salam to involve this process as a matter of business answer first the sale of goods without actual possession is not permissible
if economic situation in some islamic countries and public interest demands that in some special situations it should be used for business purposes in order to remove some real injustice then it would be lawful to do so in the interests of

q if a client for instance purchased tons of cereals in salam transaction in january for a pre determined price to be delivered to him in may and in march another person offered to join him as a partner for half of what he had agreed upon then is it permissible for him to take on this other person as a partner in what he had already contracted for regardless of whether his payment is the same greater or less than the price of salam answer this case falls under the non permissibility of selling goods purchased in a salam transaction before actually taking their possession as described in the first paragraph a of the previous fatwa
source resolutions and recommendations of al baraka symposia on islamic economydepartment of research development dallah al baraka group a al baraka nd symposium a fatwa no

q is it permissible to sell the purchased commodity muslam fih in a salam transaction to another party who substitutes me before i receive the commodity and hence the commodity is delivered to him instead of me then the sale may be repeated in the same manner answer the sale of the purchased commodity muslam fih before actual reception possession is unanimously prohibited as stated in the book of al mughni written by ibn ghudammah which is a reference book by all scholars because it is a well authenticated and perfect reference
source shariah fatwas in economic issues book part and a kuwait finance house fatwa no

q a person paid sum of money to another in exchange of quintal of cotton to be delivered on october for instance is it permissible for the buyer rabb us salam to receive on the due date the price of quintal according to the prevalent price considering that the seller muslam ilih has the cotton which is also available to others and able to deliver it
if he paid him the price in this case is this transaction usurious or not answer having reviewed this question we resolve the following it is not permissible to dispose of the purchased commodity muslam fih even to the seller himself before possessing it

parallel salam q shariah opinion is sought in the case the company purchases commodities petrol metals or otherwise on salam basis by paying their price on spot and receiving the commodity later considering that the company may sell the said commodities on salam by receiving the price of commodities at selling and delivering the commodities on a future date having reviewed the question the shariah board resolved the following the resolution the major feature of salam contract is that it is a contract on some thing described on liability fungible goods whether it is measured weighed cultivated and of standard nature
the buyer musalam may between the date of salam contract and the date of actual reception of the commodity muslam fih to act as a seller muslam iliah in a similar commodity pursuant to terms and conditions equivalent to those of salam contract which he concluded or in accordance with amended conditions

if dealing in credit market in advanced economies takes place in a highly competitive environment while in other countries in which competition takes place in a more flexible manner suffer from obstacles which obstruct other investment modes this instrument salam contract is regarded as an important and vital mode which secures safe entry to the markets where competition is flexible and at the same time it is capable of acquiring sufficient guarantees against normal risks of the markets like political and inflation risks
competence of salam in the islamic banking system is reflected by its flexibility and responsiveness to meet different financing needsshort medium or long term financing and its responsiveness to the needs of different and various classes of customers including agricultural and industrial producers contractors or traders in addition to its high response to financing of operation and capital expenses

date of contract conclusion and the date of delivery the bank may conclude contract or contracts of salam with other investors where the bank becomes a seller muslam iliah and hence undertakes to import iron rods similar to the rods on which he signed salam contract with the factory for terms and conditions similar to those made with the factory or pursuant to amended conditions
in case there is a need for gradation of cash flow for the factory a number of contracts may be concluded for this purpose simultaneously instead of one contract between the date of provision of finance and the date of delivery

contrary to the previous formula the salam contract which the bank concludes with the factory where the bank is a buyer muslam may precede in time the salam contract where the bank is a seller for the cement muslam iliah
implementation of this proposal requires that the bank selects carefully the goods which it trades on so that they should be of the type that can be stored for longer periods and determines the bank s purchase price in a manner that considers the time cycle needed to sell them as well as storage and other costs in addition to taking into consideration normal price fluctuations of such type of commodities

the contract stipulates that the factory store the produced quantities of cement in its stores under the bank s name and the bank authorizes it to sell it for the bank s benefit for an immediate or deferred price not less than that determined
hence the bank could have used its funds to finance purchase of goods on salam for relatively lower prices and sells them on deferred sale after its actual possession for relatively higher prices

in saying that profit shall not be guaranteed it does not mean that it can not be achieved actually because the bank may by means of study and experience create favorable conditions that reinforce its confidence to achieve profit without influencing legitimacy of the contract
it is worth noting that wherever salam contract is mentioned we put into consideration adherence to shariah controls of the contract which include among other things immediate payment of price a condition made to avoid tricks to exploit salam contract and divert it to usury based financing

at last we refer to the second part of the question which is the sale of salam commodities by the bank before receiving if this covers a type other than that we covered in the previous three examples and as salam contract is a contract on a thing described on liability and not on a particular asset ayn the inquirer could mean a type other than the types included in the

three examples ie sale of salam contract by buyer replacing the bank so that all rights and obligations of the bank are transferred to it
this practice is not permissible because debt can not be sold before actual possession hence should be replaced by numerous other permissible modes

table of contents subject page first istisna general provisions of istisna

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AlHuda Material\islamic economics

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contract finance goodacceptable purchase murabaha fatwa client shariah price transact kuwait permissibility sale source profit islam issuance commodities promise credit

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166

Published Date

2007-06-18 14:10:54

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Shariah Opinion (Fatwa)

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