Understanding Islamic Finance - Doha Academy of Tertiary Studies

138 Understanding Islamic Financefrom the vendor whenever he desires. 32 Hence, if A has purchased a car from B, who hasplaced the car in a garage where A has free access and A is allowed to take delivery, real orconstructive, from that place whenever he wishes, the car is in the constructive possessionof A and if he sells it to C without acquiring physical possession, the sale is valid.This implies that as the purchaser has taken the liability of the risk, he is considered theowner of the commodity, although the asset/commodity is still in the godown of the selleror even in any other country or area. Hence, if a Karachi-based bank contracts to purchaseone hundred thousand bags of fertilizer from a factory in Lahore and the factory sets thebags aside and gives constructive possession to the bank, the bank is considered the rightfulowner of the fertilizer and is capable of selling it to any third party. So long as the bags arenot sold, the asset, market or price risk will be that of the bank and not of the factory.However, one can promise to sell something which is not yet owned or possessed.Similarly, one can promise to buy any asset with given specifications. In the case of promise,the actual sale will have to be executed after the commodity comes into the possession of theseller, with proper offer and acceptance, and unless the sale is formally executed, the promisewill have no legal consequences. Normally, a promise creates just a moral obligation on thepromisor to fulfil his promise, but if the promisee has incurred any liability or expense as aresult of the promise and the promisor backs out, the latter should be held responsible forthe actual loss to the promisee.6.5.2 Prices and the Profit MarginAs a principle, Islam is not inclined to fix prices or profit margins for traders and leaves themto be settled by the forces of demand and supply. The holy Prophet (pbuh) is reported tohave allowed the competitive price mechanism to balance the demand and supply of goodsfor the dispensation of economic justice, the best ultimate benefit of society and for efficientallocation of resources. 33 The limitations are only to take care of some moral, religious andcultural perceptions and aspirations, which give an important place to the State in ensuringthe desired norms. 34However, Islam has ordained transparency in respect of features/qualities of the waresand honesty in dealing. In a market where buyers and sellers trade with liberty, the partiescan bargain on any price. In Sunan Abu Daud, we come across a very interesting instance.The holy Prophet (pbuh) sent one of his Companions (‘Urwah) to purchase for him a goatand gave him one dinar. Urwah went to the market and purchased two goats for one dinar,then sold one of them in the market for one dinar and gave the holy Prophet a goat and alsoone dinar. The holy Prophet was so happy with his honesty and expertise that he prayed forthe promotion of his trade and business. 35With regard to pricing, the Islamic Fiqh Council of the OIC, in its fifth session, resolvedthe following:32 Al-Atasi, 1403 AH, Majallah, Article 263; Al-Marghinani, Hidaya, 3, pp. 58–59.33 Tirmidhi, 1988, No. 1336 (also in Abu Daud, 1952, Kitab al Buyoo).34 If suppliers of the goods do not act judiciously and the authorities fail to protect consumer rights, prices can be fixed inconsultation with the experts in the relevant field. See Waliullah, 1353 H, 2, p.38.35 Tirmidhi, 1988, No. 1281, p. 18; Abu Daud, 1952, Kitab al Buyoo, Bab fel Mudarib.