Financial Instruments 79
auction sales, and so on. Contracts of exchange include a variety of con-
tracts, which differ from one another in their specifi c legal requirements,
rights, obligations and liabilities, but have a similar result; namely, the trans-
fer of ownership from one party to another. There are specifi c rules for the
exchange of specifi c types of assets; for example, exchanges of currency and
debt can only take place on the spot and any deferment of exchange or pay-
ment is not allowed.
There is no concrete way to classify the contract of sale, but it can be
viewed from different angles, depending on the underlying asset and/or the
modes of payment and delivery. When sale contracts are viewed considering
the subject of sale or the underlying asset, sale can be of fi ve types:
(i) Bay’ — sale of a property or commodity (moveable or immoveable) to
another person for a price
(ii) Sarf — sale by exchange of money for money on the spot
(iii) Sale by barter — exchange of goods for goods, in which neither is a
money payment
(iv) Bay’ al - dayn — sale of debt or liability
(v) Bay’ al - salam (sale by immediate payment against future delivery) and
Bay’ al - istisnah (sale on order). The main feature of such sales is that
the item for sale is yet to come into existence at the time of the contract.
Similarly, when viewed from the point of view of the mode of payment,
sales contracts fall into the following categories:
(i) Spot cash sale: The purchaser is under an obligation to pay the agreed
purchase price at the time of concluding the contract
(ii) Installment sale: Where payment is deferred and is to be made in
installments
(iii) Lump sum payment payable in the future: This mode of payment is
valid if the date of payment is predetermined and is applicable to all
types except bay’ al - salam.
(iv) Bay’ al - arabun: Here, a portion of the full sale price is paid in good
faith as earnest money. If the buyer decides not to complete the sale, this
advance payment is forfeited to the seller.
In some cases, the sales contract can result in a credit sale where
the payment is deferred, but there is a cost involved in deferring the
payment. Such contracts (murabahah) are discussed in more detail later.
(v) Deferred payment contracts (bay’ al - muajjil): This contract allow for
the payment for a product in installments or in a lump sum. The price
of the product is agreed between the buyer and the seller at the time of
the sale and cannot include any charges for deferring payments.
Bay’ al - salam (Purchase with Deferred Delivery) Bay’ al - salam contracts are similar
to conventional forward contracts in their function, but have different pay-
ment arrangements. The buyer pays the seller the full negotiated price of a