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Submitted to: Dr. Muhammad Tahir Mansoori Submitted By: Hafiz Sanaullah Kiani 07 -FSL/MS-ICL/F11
collected in silver coins and sell them in denominated silver coins and collecting in gold coins He (pbuh) said, there is no harm if you take it at its spot price, as long as you do not depart without fully concluding the transaction. On the authority of this Hadith, sale of debt was opined to be approved by the Prophet (s.a.w.) (Wahbah Zuhayli, 2003). This opinion is later endorsed by the Islamic Fiqh of Jeddah in 2002 which held that sale of debt for immediate payment is allowed. In other words, the debt must be sold at an equivalent value; not more and not less or else any additional sum accruing from the sale of debt is riba.
Despite the standing of traditional Majority Muslim jurists that any surplus out of sale of debt is amounting to riba, it can be seen that Islamic banks and financial institutions continue to practice so by selling debt products such as the Islamic Accepted Bills and Islamic Bonds on discount. This paper shall unveil the operation of such products later and it can be observed that these Islamic Finance products are mere replications of conventional financing products. These products have incorporated the contract of sale of debt (bay al-dayn) to justify the additional income made such sale which shall be called as profit out of the trading of debts. Indeed, while the Middle East Countries have prohibited the sale of debt, in Malaysia such practice is permitted on the basis the debt sold by Islamic banks is essentially the profit generated from sale of commodity based mode of Islamic Finance such as Murabahah. In other words, a debt is a tradable commodity/asset because its existence is attached or tied to the real assets sold under the Murabaha sale. Another view to justify the permissibility of the sale of debt at a discount rate propounded by the minority of Muslim jurists is that such debt is in the form of the rights sold to the purchase. It is the sale of haqq and not the debt itself. Thus, any gain out of this sale is considered a profit. However, the justification is considered unsound by majority of Muslim jurists. Another contemporary view supporting the sale of debt at a discounted value is based on the principle of Ibra. Ibra allows the discharge of a whole or part of ones claim on a debtor. Hence, it is entirely the banks right to sell the debt at a discounted value. Nevertheless, scholars do not agree with this argument holding that Ibra and sale of debt have a completely different objective and implementation.
Conclusion
In spite of such justifications, they are refuted by Mufti Taqi Uthmani who is of the view that sale of debt at discount value (even though backed by murabahas commodity) is prohibited because upon sale of the asset in a Murabahah transaction, the ownership has already been passed from the bank to the purchaser and it is no longer the commodity of the seller/bank. The bank is only entitled to the money (monthly installments) being the consideration of the commodity sold. Then, it is apparent that the bank is selling money rather than assets. Hence, the banks cannot justify the issuance of such paper money at discount. Thus, it is clear that any gain made on the sale of money for money is deemed as riba al fadhl.
References Article 158, Majjellah Al Ahkam Addliyyah Wahbah Zuhayli, Financial Transaction in Islamic Jurisprudence, Dar al Fikir: Damascus. 2003 V.1, P. 84. Hj. Zaharuddin, Ruling on Debt Trading in Shariah NST Business Times, 21st June 2006. Wahbah Zuhayli, Financial Transaction in Islamic Jurisprudence, Dar al Fikir: Damascus. 2003 V.1, P. Saiful Azhar Rosly & Mahmood M. Sanussi, The Application of Bay al- Inah and Bay al- Dayn in Malaysian Islamic Bonds: An Islamic Analysis. International Journal of Islamic Financial Services Vol. 1 No. 2. Wahbah Zuhayli, Financial Transaction in Islamic Jurisprudence, Dar al Fikir: Damascus. 2003, First Edition. V.1;P. 81. 16th Convention on Islamic Fiqh Academy of Jeddah, Mecca, 5th-10th January 2002. Hj. Zaharuddin, Ruling on Debt Trading in Shariah NST Business Times, 21st June 2006 Hj. Zaharuddin, Ruling on Debt Trading in Shariah NST Business Times, 21st June 2006. Taqi Uthmani (2002), An Introduction to Islamic Finance, Kluwer Law International:Hague.