Understanding Islamic Finance - Doha Academy of Tertiary Studies

Trading in Islamic Commercial Law 151This concept of option is entirely different from the “options” that are simply the rightssold/bought in the conventional derivatives markets. Such transactions do not fulfil theconditions required for a valid sale. We shall discuss options and other derivatives in detailin Chapter 8.The Sharī´ah literature discusses the concept of option in trade wherefrom we concludethat the informationally disadvantaged party at the time of entering into the contract canhave the option to cancel the contract within a specified period. The Prophet (pbuh) himselfrecommended to one of his Companions to reserve an option for three days in all hispurchases. Jurists are unanimous on the validity of this kind of option. However, they differon options for more than three days. 91 Such option stipulation can be reserved by either ofthe parties.Aside from this, the purchaser has an option without any stipulation with regard to thingshe has purchased without seeing, and also on account of defects in the commodity beingsold. The greatest of all defects is the lack of a title or of the right to sell on the part of theseller. The parties can also agree that if payment is not made within three days, the contractwill be annulled. This is called an option of payment (Khiyar-e-Naqad). This sale would bevalid only if payment was made within the specified number of days. 92The following five types of options among various forms discussed in Fiqh books areimportant:• Khiyar al-Shart: a stipulation that any of the parties has the option to rescind the salewithin so many (specified) days; this is also termed Bai‘ al Khiyar.• Khiyar al Ro’yat: an option to be exercised on inspecting the goods – goods, if notaccording to the contract, can be returned after inspection if such an option has beenprovided for in the sale agreement.• Khiyar al ‘Aib: an option with regard to defect – goods can be returned if found to bedefective; this kind of option is available even if no such condition is stipulated in thecontract if the defect was not brought to the notice of the buyer at the time of the contractand the defect caused a visible decrease in the value of the sold commodity. 93 However,if the seller declares at the time of the contract that he will not be held responsible forany defect in the commodity, the contract is valid according to Hanafis. 94• Khiyar al Wasf: the option of quality – where goods are sold by specified quality, butthat quality is absent, the goods can be returned.• Khiyar-e-Ghaban: the option relating to price – where goods are sold at a price far higherthan the market price, and the client is told or given the impression that he has beencharged the market price.As regards the Khiyar al Ro’yat, jurists differ as to whether the sale of unseen items isbinding or not. 95 Ibn Hazm contends that if a person purchases an unseen commodity but theseller has sufficiently described its features and the commodity conforms to those features,91 Al Jaziri, 1973, p. 358.92 Al Jaziri, 1973, pp. 358, 359.93 Al Jaziri, 1973, pp. 381–383.94 Al Jaziri, 1973, p. 395.95 Ibn Hazm, 1988, 7, pp. 214, 215.