Section 3: Deferred trades:
Firstly: The recurring trade (istijrar) [1741] Translator’s note: This may also be known as a “supply contract”.
1. Defining “recurring trade”:
Linguistically: It is derived from “jarra”, “yajurru”, “jarr”, meaning “bringing around” and “pulling”.
Technically: It is to acquire commodities periodically from the seller and then pay their price after their use. [1742] See Al-Durr al-Mukhtar li al-Haskafi wa Hashiyat Ibn `Abidin (4/516).
2. The ruling on the recurring trade
The recurring trade is permissible, [1743] This can take several forms. For the Hanafis, it takes the following forms: Firstly, a person taking items from a seller gradually, without knowing the price or the time of acquisition. The person then settles the payment afterward. Although this contradicts general analogy (qiyas), it is considered permissible according to the Hanafi school. Secondly, the person is aware of the price and the time of acquisition. This form is also considered permissible according to the Hanafi school. Thirdly, a person paying the seller a certain amount of money and stating, for example, "I bought a hundred pounds of bread from you," and then taking a specified amount each day without knowing the exact price. This type of sale is considered invalid, and the consumed items are deemed disliked due to the ambiguity in the transaction. Fourthly, a person paying the seller without explicitly stating the purchase, and then taking a certain amount daily without knowing the price. In this case, the sale is not considered valid according to the Hanafi school due to the lack of clarity regarding the price. See Hashiyat Ibn `Abidin (4/516) and Al-Mawsu`at al-Fiqhiyyat al-Kuwaytiyyah (9/44). For the Malikis, it takes the following forms: Firstly, a person placing a certain amount of money with a seller and then taking a known quantity of goods from that amount. This form of transaction is considered permissible in the Maliki school. Secondly, a person placing money with a seller and specifying that they will take a certain quantity of a particular item, such as dates or milk, with an agreed-upon value. The details of the goods and their price are agreed upon, and the person can take them at any time or at a later specified time. This form is also considered permissible according to the Maliki school. Thirdly, leaving money with a seller in exchange for a specific or unspecified quantity of goods, with the understanding that the person will take a daily portion at the agreed-upon price. According to the Maliki school, this form is not permissible because the agreed-upon price is unknown. See Al-Muntaqa Sharh al-Muwatta’ by Baji (5/15), Mawahib al-Jalil by Hattab (6/516), and Minah al-Jalil by `Ulaysh (5/384). For the Shafi`is, it takes the following forms: Firstly, a person tells the seller, "Give me such-and-such amount of meat or bread," for example. The buyer then pays the agreed-upon amount, takes the goods, and is satisfied with them. After a period, the buyer settles the account and pays the accumulated amount. This form is considered valid according to those who permit transactions of this nature, such as Ghazali. Secondly, a person takes items from the seller gradually, without giving anything in return at the time of taking. There is no explicit mention of a sale, but the intention is to take the items at their usual price. After a period, the person accounts for the items and pays the accumulated amount. This form is considered invalid according to the Shafi`i school, while al-Ghazali permits it. See Hashiyat al-Shirwani `ala Tuhfat al-Muhtaj li Ibn Hajar al-Haytami (4/217), Nihayat al-Muhtaj by Ramli (3/375), and Al-Mawsu`at al-Fiqhiyyat al-Kuwaytiyyah (9/44). and this was stated by the Hanafis [1744] Hashiyat Ibn `Abidin (4/516). and Ghazzali from the Shafi`is [1745] See Hashiyat al-Shirwani `ala Tuhfat al-Muhtaj li Ibn Hajar al-Haytami (4/217) and Hashiyat al-Shabramallisi `ala Nihayat al-Muhtaj li al-Ramli (3/375). and was indicated in the statements of the Malikis, [1746] The Malikis called this “a trade of the people Madinah”. Mawahib al-Jalil by Hattab (6/516) and Minah al-Jalil by `Ulaysh (5/384). and it is a statement related from Ahmad [1747] According to the Hanbalis, this issue is based on selling at market price. Al-Insaf by Mardawi (4/224). See also Masa’il al-Kawsaj (1909), Masa’il Abi Dawud (1269), and Bada’i` al-Fawa’id by Ibn al-Qayyim (4/103). and the preferred opinion of Ibn Taymiyyah [1748] Ibn al-Qayyim and Mardawi attributed this opinion to Ibn Taymiyyah. See I`lam al Muqi`in by Ibn al-Qayyim (4/5) and Al-Insaf by Mardawi (4/224). and Ibn al-Qayyim. [1749] Ibn al-Qayyim said: “The scholars have differed regarding the permissibility of selling items where the price is not determined at the time of the contract without specifying the price or time. One form of this is selling from a baker, blacksmith, tanner, or similar professions. In this scenario, a person takes something known from the seller every day, then settles the account at the end of the month or year, paying the agreed-upon price. Many have prohibited this, considering the act of taking without a specific price as invalid and not transferring ownership, as it is considered an invalid contract. The prevalent practice among people, except for those strict on themselves, is to engage in such transactions despite acknowledging their invalidity. However, they consider them still bound to the ownership of the seller. The only way for the buyer to rid himself of this situation is through renegotiation at every transaction, taking the item for a lesser or greater price. If the buyer insisted on explicitly stating the offer and acceptance in such transactions, then the contract would be valid, provided it aligns with the practice of bargaining. The correct and established opinion is the permissibility of selling items where the price is not determined at the time of the contract. This opinion is attributed to Imam Ahmad, chosen by many scholars, and supported by the prevailing practice of people. It is considered more beneficial for the buyer than engaging in explicit bargaining. According to this view, those who prohibit it are still engaged in such transactions, and their prohibition is not based on the Qur’an, the Sunnah, the scholarly consensus, or sound analogy.” I`lam al Muqi`in (5/4).
This is for the following reasons:
(1) Because most people consider it to be a type of trade, and it is common for the price of the commodity to be known to both parties at the time of acquisition and delivery, even if not explicitly mentioned. [1750] See Tuhfat al-Muhtaj by Ibn Hajar al-Haytami (4/217).
(2) Because it is not prohibited in the Book of Allah, the Sunnah of His Messenger g, the consensus of the Muslim community, a statement of a Companion, or a sound analogy. [1751] See I`lam al Muqi`in by Ibn al-Qayyim (4/5).
(3) By analogy to the validity of marriage with a “typical” mahr, which is agreed upon by consensus. [1752] See I`lam al Muqi`in by Ibn al-Qayyim (4/5).
(4) The purpose of this trade is to sell a commodity for an equivalent price, so it is permissible, just as exchanging for an equivalent price is permissible. [1753] See I`lam al Muqi`in by Ibn al-Qayyim (4/5).
Secondly: The reverse cost-plus trade (tawarruq)
1. Defining the “tawarruq” trade
Linguistically: It is derived from “warq”, one of whose meanings is “wealth”. It can be composed in three ways, “wariq”, “wirq”, and “warq”, and a “warraq” is a person with a lot of “wariq”. [1754] See Lisan al-`Arab by Ibn Manzur (1/375).
Technically: [1755] This issue is called “tawarruq” because the buyer purchases the commodity not with the intention of possessing it for its own value but rather to obtain liquidity, represented by the currency, which is silver in this context. Buying a commodity with a delayed payment, then selling it immediately at a different price to benefit from the immediate amount. [1756] See Fatawa al-Lajnah al-Da’imah (13/161).
2. Ruling on the reverse cost-plus trade trade
The reverse cost-plus trade is permissible, and this was stated by the Hanbalis [1757] Al-Insaf by Mardawi (4/234) and Al-Iqna` by Hajawi (2/77). and was the judgement of the Malikis in their most well-known view, [1758] However, they see it as disliked. Mawahib al-Jalil by Hattab (6/294) and Hashiyat al-Dasuqi ?ala al-Sharh al-Kabir (3/89). See also Al-Mudawwanah by Sahnun (3/167, 168). Shafi`is, [1759] According to the Shafi`is, it is permissible to sell a commodity and then repurchase it (known as the `inah trade) if the second sale is not conditioned in the contract. This concept is seen as a return of the goods to their original seller. Due to their acceptance of this principle, Shafi'is also consider tawarruq permissible. They discussed the meaning of tawarruq within the context of discussing the permissibility of the `inah trade. Al-Majmu` by Nawawi (9/261) and Rawdat al-Talibin by Nawawi (3/418, 419). and some Hanafis, [1760] The Hanafis mentioned tawarruq as a form of `inah and some of them permitted it. Fath al-Qadir by Ibn al-Humam (7/213), Al-Bahr al-Ra’iq by Ibn Nujaym (6/256), Hashiyat Ibn `Abidin (5/326), Tabyin al-Haqa’iq by Zayla`i (4/163), Al-Hidayah by Marghinani (3/94). and was the basis of the decision of the Islamic Fiqh Council of the Muslim World League [1761] The fifth decision at the fifteenth session, Makkah al-Mukarramah, 11 Rajab 1419 AH. Qararat al-Majma` al-Fiqhi al-Islami bi Makkat al-Mukarramah – al-Dawrat min al-Ula il al-Sabi`at `Ashrah – al-Qararat min al-Awwal il al-Thani ba`d al-Mi’ah, 1398-1424 AH / 1977-2004 CE, p. 320. and the ruling of the Permanent Committee, [1762] The decision of the Permanent Committee stated: “The issue of ‘tawarruq’ refers to buying a commodity at a deferred price and then selling it immediately at a spot price to someone other than the initial seller at the deferred price, with the intention of gaining benefit from its price. The majority of scholars consider there to be no harm in this practice.” Fatawa al-Lajnah al-Da’imah (13/161). and was the preferred opinion of Ibn Baz [1763] Ibn Baz said: “The issue of tawarruq is not from the same category. It involves acquiring goods for deferred payment, and then selling them for cash on the same day, the next day, or later to someone other than the original buyer. The correct view is that it is permissible due to the general evidence supporting it and its potential for providing relief and facilitation while addressing present needs. However, if the goods are sold to the original buyer, it is not permissible and falls under the category of the `inah trade, which is prohibited as it involves a form of deception related to usury.” Majmu` Fatawa Ibn Baz (19/245). and Ibn `Uthaymin. [1764] Ibn `Uthaymin permitted it according to certain conditions. He said: “I see that it is permissible with certain conditions, which are: 1. It should be difficult to obtain the needed amount through permissible means, such as loans, which are often challenging to secure, especially for traders. The same applies to the salam trade, which is not well-known among people. The salam trade involves paying upfront for goods that will be delivered at a later date. If obtaining money through conventional means is difficult, tawarruq becomes permissible. 2. There should be a clear and genuine need for the transaction. 3. The goods should be in the possession of the seller. If the goods are not in the possession of the seller, it would be considered selling something that is not in their control, and this is not allowed. The Prophet g prohibited selling goods in the place where they are purchased until the seller takes possession of them. If these three conditions are met, then there should be no issue, as people might find themselves compelled to engage in such transactions at times.” Al-Sharh al-Mumti` (8/220, 221).
Evidence:
(1) From the Book:
The Statement of Allah Exalted, “Allah has permitted trading.” [1765] al-Baqarah, 275.
(2) Because there is no difference between buying a commodity for personal use and buying it for resale and to benefit from its price. The first intends to benefit from the commodity itself and the second intends to benefit from its value. [1766] See Al-Sharh al-Mumti` by Ibn `Uthaymin (8/219, 220).
3. Banking (planned) tawarruq
Defining banking (planned) tawarruq
Banking (planned) tawarruq is the establishment of a standardised process by a bank in which a commodity (not of gold or silver) is sold from global commodity markets or elsewhere to the seeker of money on a deferred basis. The bank commits, either through contractual conditions or customary practices, to sell it to another buyer at a present price and deliver the proceeds to the original seeker of money. [1767] See Qararat al-Majma` al-Fiqhi al-Islami bi Makkat al-Mukarramah – al-Dawrat al-Sabi`at `Ashrah. 19 - 23/10/1424 AH / 13 - 17/12/2003 CE, p. 27.
Ruling on banking (planned) tawarruq:
Banking (planned) tawarruq trade is prohibited, and this was stated by the Islamic Fiqh Council of the Muslim World League, [1768] The decision of the Islamic Fiqh Council of the Muslim World League, which convened from 19 - 23/10/1424 AH / 13 - 17/12/2003 CE, stated: “The council has reviewed the issue of ‘tawarruq’ as conducted by some banks in the present time. After listening to the presented research and the discussions held around the topic, it became clear to the council that the tawarruq conducted by some banks involves arranging the sale of a commodity (not gold or silver) from global markets or others to the client at a deferred price. The bank commits, either through a condition in the contract or by customary practice, to act as an agent for the client in selling the commodity to another buyer at a spot price, and then delivering the proceeds to the client. After careful consideration and study, the council has decided the following: Firstly, the tawarruq as described in the preamble is not permissible.” Qararat al-Majma` al-Fiqhi al-Islami bi Makkat al-Mukarramah – al-Dawrat al-Sabi`at `Ashrah. 19 - 23/10/1424 AH / 13 - 17/12/2003 CE, p. 27. the Islamic Fiqh Academy of the Organisation of Islamic Cooperation, [1769] The decision of the Islamic Fiqh Academy of the Organisation of Islamic Cooperation, no. 179 (5/19), stated: “The practice of both organised and reverse tawarruq is not permissible. This is because they involve collusion between the financier and the client, explicitly or implicitly, or as a customary practice, to obtain immediate cash in excess of what is owed, leading to a form of usury.” See Qararat wa Tawsiyat Majma` al-Fiqh al-Islami al-Dawli 1-185, 1405-1430 AH. and the Jordanian Department of Religious Rulings. [1770] The decision of the Jordanian Department of Religious Rulings, no. 171 (3/2012), on the date 29/4/1433 AH / 22/3/2012, stated the following: “After studying and deliberating on the matter, the council has decided the following: organised tawarruq, in contemporary terminology, is the purchase of goods by the customer on a deferred payment basis. The seller (financier) arranges for the sale either personally, through delegation to another party, or in collaboration with the customer, typically at a lower immediate price. Regarding the banking practice of some Islamic banks involving organized tawarruq, it is deemed a form of deception to circumvent the prohibition of usury. The true objective of this operation is to obtain money in return for an increase. The bank engages in a fictitious purchase of goods, sells them to the client on a deferred basis, then resells them to a third party at a lower amount. The client receives the immediate amount and is bound by the entire deferred amount. In essence, this constitutes a usurious loan, even though it may appear as a form of tawarruq. Therefore, we consider such transactions to be impermissible due to their deceptive nature to circumvent the prohibition of usury.” The Official Website of the Jordanian Department of Religious Rulings.
This is for the following reasons:
(1) Because the seller’s commitment in a banking (planned) tawarruq contract, acting as an agent in selling the commodity to another buyer or arranging who will buy it, renders it similar to the prohibited `inah practice, whether the commitment is explicitly conditional or based on customary practices. [1771] See Qararat al-Majma` al-Fiqhi al-Islami bi Makkat al-Mukarramah – al-Dawrat al-Sabi`at `Ashrah. 19 - 23/10/1424 AH / 13 - 17/12/2003 CE, p. 27.
(2) Because this transaction often leads to a violation of the condition of taking possession required for the validity of a trade. [1772] See Qararat al-Majma` al-Fiqhi al-Islami bi Makkat al-Mukarramah – al-Dawrat al-Sabi`at `Ashrah. 19 - 23/10/1424 AH / 13 - 17/12/2003 CE, p. 27.
(3) Because the reality of this transaction is based on providing cash financing with an increase to who is called the “client” or “seeker of funds” from the bank in sales and purchase transactions conducted through it, which are usually purely symbolic terms. The bank’s goal is to gain additional returns on the provided financing. This differs from the traditional “tawarruq” known amongst jurists. [1773] Real tawarruq involves the actual purchase of a commodity on deferred terms, entering into the ownership of the buyer, taking physical possession, and placing it under his guarantee. Subsequently, the buyer sells it at a current price due to his need, which may or may not be attainable. The difference between the two prices, deferred and current, does not fall under the ownership of the bank. The introduced complexity in the transaction serves the purpose of justifying the bank's receipt of an increase for the financing it has provided to the individual through mostly symbolic transactions. This element is not present in the clarified transaction carried out by some banks. See Qararat al-Majma` al-Fiqhi al-Islami bi Makkat al-Mukarramah – al-Dawrat al-Sabi`at `Ashrah. 19 - 23/10/1424 AH / 13 - 17/12/2003 CE, p. 27.
Reverse tawarruq (alternative to a term deposit) [1774] It is also called inverted tawarruq, direct investment, profit-sharing investment, and other modern names. See Qararat al-Majma` al-Fiqhi al-Islami, p. 495, third edition.
Forms of reverse tawarruq (alternative to a term deposit):
The most well-known form of the alternative to a term deposit is when the client (depositor) authorises the bank to purchase a specific commodity and immediately delivers the price to the bank. Subsequently, the bank purchases the commodity from the client at a deferred price, with an agreed-upon profit margin. [1775] See Qararat al-Majma` al-Fiqhi al-Islami, p. 495, third edition.
Ruling on reverse tawarruq (alternative to a term deposit):
Reverse tawarruq (alternative to a term deposit) is not permissible, and this was the decision issued by the Islamic Fiqh Council of the Muslim World League [1776] The decision of the Islamic Fiqh Academy, no. 110 (4/19), stated the following: “In its nineteenth session held in Mecca from 22-26 Shawwal 1428 AH (3-7 November 2007), the Islamic Fiqh Council of the Muslim World League addressed the topic of ‘Alternative to Deposit for a Period’ practiced by some banks in various names such as reverse murabahah, reverse tawarruq, or inverted tawarruq. The common form of this product involves: Empowering the client to delegate the bank to purchase a specific commodity and delivering the price to the bank immediately. The bank then buys the commodity from the client at a deferred price, with an agreed-upon profit margin. After extensive research and discussions, the Council decided that this transaction is not permissible due to its similarity to the prohibited ‘`inah’ trade. The Council also noted that this transaction falls under the concept of ‘organised tawarruq’ which it had previously declared impermissible in its seventeenth session. The decision was made based on the reasons that the sold commodity is not intended for its own sake, and the bank commits to repurchase it from the client. Additionally, this transaction was deemed to be in violation of the principles set forth in the prohibition of organised tawarruq. (Fifth decision of the nineteenth session of the Islamic Fiqh Council of the Muslim World League.)” Qararat al-Majma` al-Fiqhi al-Islami, p. 495, third edition. and the decision of the Islamic Fiqh Academy of the Organisation of Islamic Cooperation. [1777] Decision of the International Islamic Fiqh Academy, no. 179 (5/19), which included: “Secondly, it is not permissible to engage in the two tawarruqs (organised or reverse) because they involve collusion between the financier and the party seeking funds, whether explicitly, implicitly, or as a customary practice. This collusion is a means of obtaining present cash more than what is in the possession of the borrower, constituting a form of usury.”
This is for the following reasons:
(1) Because this transaction is similar to the prohibited issue of `inah, in the sense that the commodity is not sought for its own sake, and especially because the bank is obligated to buy the commodity from the client. [1778] The fifth decision of the nineteenth session of the Islamic Fiqh Council of the Muslim World League. See Qararat al-Majma` al-Fiqhi al-Islami, p. 495, third edition.
(2) Because this transaction falls within the concept of planned tawarruq, and the reasons for banking tawarruq being prohibited are also present in this transaction. [1779] The fifth decision of the nineteenth session of the Islamic Fiqh Council of the Muslim World League. See Qararat al-Majma` al-Fiqhi al-Islami, p. 495, third edition.
(3) Because this transaction contradicts the purpose of Islamic financing, which is based on linking financing to real economic activity, promoting economic growth and prosperity. [1780] The fifth decision of the nineteenth session of the Islamic Fiqh Council of the Muslim World League. See Qararat al-Majma` al-Fiqhi al-Islami, p. 495, third edition.
(4) Because it involves collusion between the financier and client, whether explicitly, implicitly, or customarily, to misleadingly obtain more money than is owed, which constitutes usury. [1781] Decision of the International Islamic Fiqh Academy, no. 179 (5/19).
Thirdly: Trade by taqsit (payment in instalments)
The trade by taqsit is permissible. [1782] See the section on “How the price should be paid in a general trade”.
Fourthly: The salam trade (upfront payment for a deferred commodity)
The salam trade is permissible. [1783] See “Chapter 10 – The salam trade”.
feqhia
