Bay al-Sarf

August 5, 2009 at 7:17am

Bay al-Sarf is a contract of exchange of money for money. This contract is tightly regulated
under Shari`ah because it can be easily manipulated for the purpose of producing an interest-
bearing loan, which is prohibited in Islam.

Ibn Rushd examines the three forms of sale that can arise in a market where goods and
money are in existence:
"when two commodities are exchanged, one may serve as a currency and the other as a priced
commodity, or both may be currencies. When a currency is exchanged for a currency the sale
is called 'sarf', and when a currency is exchanged for a priced commodity, the transaction is
sale proper ('bay'). Similar is the sale of a priced commodity for another priced commodity
(barter)"
ibn Rushd: Bidayat al-Mujtahid (p. 154, Garnet, 1996)

The rules of bay al-sarf derive largely from the well known hadith:
"Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by
dates, and salt by salt - like for like, equal for equal, payment being made on the spot. If the
species differ, sell as you wish provided that payment is made on the spot".
Hadith : Muslim

Gold and silver were the currency of use at the time of the Prophet, peace be upon him, and
he approved their use by the act of using them himself. It cannot therefore be said that it is
wrong to use gold and silver as money.

Many jurists have used analogy to argue that the hadith on gold and silver represent all forms
of monetary medium, and that therefore all forms of currency should obey the rules
established for gold and silver exchanges. This position is not however unanimous, and there
are those who argue that the rules do not apply to other items, copper for example since
copper is not one of the six items mentioned in the hadith (the so-called ribawi items). Under
such an interpretation, an exchange of 10 copper coins today for 12 copper coins tomorrow
would not be a riba transaction. Similarly, there are some jurists who argue that because
money is to be regarded as gold and silver only, then paper money is not a proper form of
money and a loan of 10 paper dollars made today in return for 12 paper dollars to be received
tomorrow is not a form of riba. These however are minority views and it should be noted that
most jurists do agree that where an item is being used as money by custom (urf) among a
local population, it should obey the rules that are stated in the hadith regarding gold and
silver.

Based upon the above hadith, it is established that if gold is to be exchanged for gold, the
exchange must be made on the spot, with the amounts being of equal quality and quantity.
Because both countervalues must be settled immediately, a forward transaction (in which one
of the countervalues is delivered at a future date) is not allowed. Given that exchanges must
be equal for equal, a ten dollar not cannot be exchanged for nine one dollar notes. Proceeding
from here, commissions on currency exchange will be questioned by some scholars because
of the contravention of the 'equal for equal' ruling.

Other scholars argue that if the monetary system were correctly designed, then money would
comprise gold and silver throughout the world (i.e. American money would be made of gold,
Malaysian money would be made of gold, etc.) and hence there would be no need for foreign
exchange in the first place. Here, the arguments over the Shari`ah position on modern foreign
exchange and currency trading are seen to arise because these markets are of themselves built
upon un-Islamic foundations.

(Islamic-Finance.com)

Islamic finance links:

http://www.globalpro.com.my
http://ahmad-sanusi-husain.blogspot.com