100 Islamic Finance in Practice
- If the issuer wished to exchange it would need to send a notice to the
exchange bank providing full details as to the amount and the date of the
exchange; - An agreement was then to be entered into by both parties to reflect that
particular sale; and - The sale/exchange should take place on the same day as the agreement
to sell/purchase.
However, there were some practical concerns that had to be addressed.
Having a separate sale and purchase agreement signed by both parties each
time that there was an exchange would cause operational difficulties. After
discussions with the Shari’a advisors, it was accepted that when the notice
of exercise was sent by the issuer, the exchange bank would only have to
sign and return the notice, which would contain language that, as a matter
of English law, would constitute a concluded saleand purchase agreement.
The other commercial issue was that it would not always be possible to
exchange the currencies on the same day as the signed and returned notice
but, in this instance, the Shari’a advisers were willing to approve the
exchange if it occurred no later than two business days from the date of the
notice. This approval was given on the Shari’a ground of necessity because,
within the international banking system, the movement of funds might
require two business days for theexchange to be completed.Salam-based contracts
Historically, salamhas been used for financing agricultural products but
has been adapted to create Shari’a-compliant derivative transactions
mimicking conventional options. Asalamrequires the sale price to be paid
immediately and with ownership of thesalamgoods also being transferred
at the same time, but generally subject to a restriction that the purchaser
cannot dispose of the goodsuntil they are delivered to it.
Thesalamgoods will not be in existence when thesalamcontract is
entered into. The general rule is that the description of thesalamgoods
cannot mention a specific asset on the basis that, as the asset does not exist,
it is only possible to refer to goods in a general manner. However, the
specifications of the goods, their quality, quantity and other relevant details
must be clearly stated.
It is up to the seller to source goods thatmeet the specific requirements.
Using an agricultural example, if the salamcontract was to describe
100 kilograms of wheat from a particular field, there is the potential for the
contract to become void if the wheat in the field was destroyed. It is for this
reason that the goods must be described in enough detail for the seller to
deliver the required goods to the purchaser but must not describe a specific
source.
It is not permitted, however, to sell the salamgoods before delivery has
been made; this is because thesalamcontract could be rescinded if the seller