Understanding Islamic Finance - Doha Academy of Tertiary Studies

376 Understanding Islamic FinanceWhen a contract is concluded for the sale of an amount of currency, possession must betaken for the whole amount at the time of concluding the transaction. Possession may takeplace either physically or constructively. The form of taking possession of assets differsaccording to their nature and customary business practices. Physical possession takes place bymeans of simultaneous delivery by hand. Constructive possession of an amount of currencyor an asset is deemed to have taken place by the seller enabling the other party to take itsdelivery and dispose of it, even if there is no physical taking of possession. Some of theforms of constructive possession that are approved by both the Sharī´ah and business normsare the following:1. Crediting a sum of money to the account of the customer directly or through bank transfer.2. A customer entering into a spot contract of currency exchange with the Islamic bankagainst another currency already deposited in his account.3. The bank debiting – by the order of the customer – a sum of money to the latter’s accountand crediting it to another account in a different currency, either in the same bank oranother Islamic bank, for the benefit of the customer or any other payee.4. Receipt of a cheque constitutes constructive possession, provided the balance payable isavailable in the account of the issuer in the currency of the cheque and the bank hasblocked such a balance for payment.5. The receipt of a voucher by a merchant, signed by the credit card holder (buyer), isconstructive possession of the amount of currency entered as payable on the coupon,provided that the card-issuing Islamic bank pays the amount without deferment to themerchant accepting the card.Islamic banks are allowed to deal in foreign exchange remittances and the buying andselling of foreign exchange on a spot basis. However, differences in time zones betweendifferent foreign exchange markets require allowing two days’ delay for the clearing ofsuch operations, but the operation will be finalized on the rates of the date on which thetransaction was executed.Islamic banks can undertake remittance transactions domestically and externally. Externally,they will need to have a correspondent relationship with many banks. Given thepredominance of interest-based banks, this will pose a great challenge to Islamic banks.Some banks have managed to enter into agreements with correspondent banks without thegiving or taking of interest on the basis of reciprocal treatment. They keep foreign exchangebalances for agreed amounts and periods, i.e. they normally maintain credit balances andare, in return, allowed debit balances to a limited level.An exchange of two amounts that are debts, denominated in different currencies andestablished as obligations, is permissible if it is in the fulfilment of the obligations in respectof these debts and does not becomes a bilateral exchange of currencies. This covers thefollowing cases: for discharging two debts where one party owes an amount from anotherparty denominated in (say) dinars and the other party owes an amount from the first partydenominated in (say) dirhams, both may agree on the rate of exchange between dinars anddirhams in order to settle the debts wholly or partially. This type of transaction is known asset-off (discharge of a receivable debt against a payable debt). A creditor can take paymentof a debt due to him in a currency other than the currency in which the debt was incurred,