Understanding Islamic Finance - Doha Academy of Tertiary Studies

246 Understanding Islamic FinanceJustice Khalil-ur-Rehman, in his part of the Judgement of the Supreme Court of Pakistanon Riba says about Fulus:“ their position was not that of an independent currency. They were a form of sub-money usedonly to make payments of the fractions of a silver coin because it was not easy to break one silverdirham into two equal parts for making payment of half, nor was it easy for the government or themoney changers to issue smaller silver coins to facilitate such fractional payments. Therefore, theprinciples developed by the jurists to regulate the exchange of copper Fulus will not be applicableto the paper currency and fiat money of today. Today’s paper money has practically become almostlike natural money, equal in terms of its facility of exchange and credibility to the old silver andgolden coins. It will, therefore, be subject to all those injunctions laid down in the Qur’ān and theSunnah, which regulated the exchange or transactions of gold and silver”. 12A study conducted by the IRTI of the IDB (Umar, 1995) on Salam has thoroughlydiscussed the issue of whether money can be used as a commodity in Salam. It says:“The second form: when the principal is money (Saudi Riyals) and the commodity sold is anothertype of money (US Dollars); this is a currency exchange transaction that cannot be made throughSalam, which requires deferred delivery of the commodity sold while such exchange requiressimultaneous payment of the two exchanged amounts. Allama Shirbini gives the following opinionin the case where the principal (price) is money and the commodity sold is also money: ‘It is notpermissible to pay one of them as Salam principal for the other because Salam requires paymentof only one of the two exchanged objects of the contract at the time of signing the contract, whilethe currency exchange requires simultaneous payment of both the exchanged amounts’.” 13According to all schools of thought of Islamic jurisprudence, and particularly to the Hanafiand Maliki Fuqaha, the principal paid in Salam should be in the form of money and the twotransacted items should not be of the kind whose exchange would lead to Riba. 14 Accordingto the jurists, it is a condition of Salam that the price and the commodity sold should be ofthe kind that can permissibly be dealt in on a deferment basis. Allama Ibn-e-Rushd explainedthis issue in a comparative manner when he said about this condition: “If they are not ofthat kind, Salam cannot be practised in them.” 15In view of the above, it is concluded that forward sale or purchase of currencies to take theform of Salam is not a valid contract. Fulus that were a form of metallic money could be usedfor trading on the basis of their metal content. But currency notes are Thaman, wanted onlyfor exchange and payments and not for themselves. Allowing the exchange of heterogeneouscurrencies through Salam would open a floodgate of explicit Riba. The objects of Salamsale are commodities of trade and not currencies, because these are regarded as monetaryvalues, exchange of which is covered under the rules of Bai‘ al Sarf.10.4.2 Payment of Price: Salam CapitalPrice is normally stipulated and paid in the form of any legal tender. However, it can be interms of goods as well, on the condition that it should not violate the prohibition of Riba inbarter transactions as laid down by the Sharī´ah. Usufruct of assets can also be consideredas Salam capital, which is regarded, particularly by Maliki jurists, as immediate receipt of12 Shariat Appellate Bench, February, 2000, pp. 269–273.13 Umar, 1995, p. 39, with reference from Shirbini, 1958, p. 114.14 Umar, 1995, pp. 42, 43.15 Umar, 1995, p. 43.