Definition: Salam in the definition of the jurists, is a sale of a commodity whose delivery will be in a future date for a cash price, which means, it is a financial transaction in which price is advanced in cash to the seller who abides the delivery of commodity of determined specification on a definite due date. The deferred is the commodity sold and described (onliability) and the immediate is the price. The Salam sale serves the interests of both parties: The Seller: The seller gets in advance the money he wants in exchange of his obligation to deliver the commodity later. He benefits from the Salam sale by covering his financial needs whether they are personal expenses, family expenses or expenses for productive activity. The Purchaser: Here it is the financing bank. The bank gets the commodity it is planning to trade on in the time it decides. Because the commodity becomes the liability of the seller who meets his obligation. The bank will also benefit from the cheap prices for usually Salam sale is cheaper than a cash sale. This way the bank will be secured against the fluctuations of prices. The bank can sell on parallel Salam commodity in the same kind as it has previously purchased on first Salam without making one contract depend on the other. The bank also has the option of waiting to receive the commodity and then sell it for cash or deferred payment. Salam is a kind of debt because the subject of the Salam contract is the liability of the seller up to the due date so its allowance is subsumed in the above quoted holy verse. The Prophet (PBUH) said: "He who sells on Salam must sell a specific volume and a specific weight to a specific due date". There is consensus among Muslims on the permissibility of Salam due to the need for it and because the commodity in the contract is a recompense for the price paid in advance therefore the commodity is similar to the price in the sale on credit so it is considered to be an affirmed liability.
Al Ijarah
MODES OF LEASING
Said one of the (damsels)
"O my (dear) father! Engage Him on wages: truly the best of men for thee to employ is The (man) who is strong and trusty
Al-Gasas 26
The Prophet (PBUH) said:
"Whoever hires a worker must inform him of his wage".
Bayhaghi
Characteristic Traits of Modes of Leasing
Lease is the employment of money in operations other than sale and purchase operations. That is the subject if the operation is the sale of the benefit of the asset not the asset itself. These operations aim at obtaining the rentals and the proceeds by receiving the benefits of the asset through time.
The most important traits of lease operations:
* They basically enable the lessee to possess and use the assets it needs without pumping large amounts of money.
* Lease operations do not transfer the ownership of the assets, they only transfer the ownership of the benefits.
* Profit is independent from the corresponding value of the asset it is a rental that accrues from the renewal of benefit.
* Lease operations are usually not immediate but medium term operations.
Divisions of Modes of Leasing
The jurists divide Lease operations into two kinds:
Lease for the benefits:
It is a contract on assets. That is to deliver an asset under possession to whoever can use it for a specific recompense. This type of lease contract can be drawn on two kinds of assets.
* Lease of movable assets, such as clothes, jewelry or appliances.
* Lease of fixed assets such as houses, office buildings, etc.
"Ijara" for labour:
The subject of the contract is a specific piece of work for a certain wage. This kind of Ijara takes two forms:
* Private worker: It is he who works with one person for a specific wage and he is not allowed to work for others.
* Public worker: It is he who works for the public.
The Islamic banks use the lease for the benefits as an instrument of financing. They purchase possessions and fixed assets to let, where the assets are pub at the disposal of the customer to utilize in return of rental.
The banks use the two modes of Ijara.
* Operation Lease
* Lease - Purchase
Istisnaa
Definition:
The majority of the jurists consider Istisnaa as one of the divisions of Salam, therefore it is subsumed under the definition of Salam. But the Hanafite school of jurisprudence makes Istisnaa an independent and distinct contract. The jurists of the Hanafite school have given various definitions to Istisnaa, some of which are: "That it is a contract with a manufacturer to make something" and "It is a contract on a commodity on liability with the proviso of work".
The purchaser is called "mustasnia" contractor and the seller is called "sania" maker or manufacturer and the thing is called "masnooa" "manufactured, built, made".
Istisnaa combines two distinctive traits:
* The distinctive trait of Salam as to its permissibility even though the subject of the contract is not existing at the time of contract.
* And the distinctive trait of the ordinary absolute sale where by the price is fiduciary not necessarily be advanced as in Salam. Because Istisnaa involves labour besides the materials, it becomes akin to "Ijara" in which deferment of payment is permissible.
The bank can utilize Istisnaa in two ways:
* It is permissible for the bank to buy a commodity on Istisnaa contract then sell it after receipt for cash installed or deferred price.
* It is also permissible for the bank to enter into Istisnaa contract in the capacity of seller to those who demand a purchase of a particular commodity and then draw a parallel Istisnaa contract in the capacity of a buyer with another party to make manufacture - the commodity agreed upon in the first contract.
The first Istisnaa can be immediate or deferred (the payment). The payment in the second Istisnaa can be cash or deferred.
Stated below are the practical steps which the bank applies in the modes of Istisnaa sale, parallel Istisnaa with reference to the non-existence of any legal relation or financial obligation between:
* The purchaser requesting Istisnaa (the end user) in the first contract.
* The (maker), manufacturer, (builder) (the seller) who manufactures the article in accordance to the parallel Istisnaa contract.
So any disagreements that may arise are settled under each contract separately according to the provision therein.
Mourabaha
Murabaha sale is one kind of absolute sale (asset for price), which is divided into four kinds with respect to price:
Bargain Sale:
It is selling the commodity for agreed upon price irrespective of its purchase price.
Tawlia Sale (Respective sale):
It is selling the commodity for its purchase price without addition or discount.
Discount Sale:
It is selling the commodity for its purchase price with a certain discount.
Murabaha Sale:
It is selling the commodity for the purchase price plus a certain profit margin agreed upon. This margin can be a percentage of the purchase price or a lump sum.
These last three are called "Amana (honesty) Sales".
Murabaha Sale is divided into two types:
Ordinary Murabaha Sale:
There are two parties to it, the seller and the buyer. The seller is an ordinary trader who buys a commodity without depending on a prior promise of purchase, then he displays it for Murabaha sale for a price and a profit to be agreed upon.
Murabaha Sale connected with a promise:
There are three parties to it. The seller, the buyer and the bank as an intermediary trader between the buyer and the seller. The bank here does not purchase unless the buyer specifies his desire and a prior outstanding promise to purchase.
The mode of Murabaha sale connected to a promise is used by the Islamic banks which undertake the purchase of commodities according to the specifications requested by the customer and then resell them on Murabaha to the one who promised to buy for its cost price plus a margin of profit agreed upon previously by the two parties.
There are different forms to the application of Murabaha sale connected to a promise of purchase. Some of these forms are determined by whether the promise is binding or not. Other forms are determined by how the bank receives the commodity in the case of the first sale. Should the bank receive the commodity directly or through one of its agents or should it authorize the buyer to receive the commodity.
The Practical Steps of the Murabaha Sale:
1. The purchaser determines his needs. The purchaser: determines the specifications of the commodity he wants and requests the seller to determine the price.
The seller: sends a quotation valid for a certain period.
2. Signing a promise to purchase agreement. The purchaser: promises to buy the commodity from the bank on Murabaha sale for the cost of the commodity plus the agreed upon profit.
The bank: studies the request and determines the conditions and securities for approval.
3. The first sale contract
The bank: notifies the purchaser of its approval of purchasing the commodity. The bank may pay the price immediately or as per the agreement.
The seller: expresses his approval to the sale and sends the invoice.
4. Delivery and receipt of the commodity
The bank: authorizes the beneficiary to receive the commodity.
The seller: sends the commodity to the place of delivery agreed upon.
The Purchaser: undertakes the receipt of the commodity in its capacity as legal representative and notifies the bank of the execution of the proxy.
The Evidence of Legality
1. The legality of Murabaha sale is (obtained) obvious from:
"It is no crime in you
If you seek of the bounty
of your Lord"
Al-Baqara 198
That is because Murabaha represents looking for more. It is also subsumed under the general rule that legalizes sale Allah sayeth "Allah hath permitted trade".
2. The Prophet (PBUH) permitted the sale of the commodity for more than its purchase price. He said: "if the two commodities are different, buy and sell as you wish."
3. The consensus of the Ummah on the permissibility of the Murabaha sale. The Kassani has pointed out that the people inherited these kinds of sales (Murabaha and other sales) throughout the generations and ages without any protests of non acceptance.
4. The Fatwa of the second conference of the Islamic bank: "The promise in the Murabaha sale to he who orders the purchase " is legally permissible after owning and possessing the commodity, only then it is permissible to sell it to the purchaser who requested it for the price specified and mentioned in the previous mutual promise agreement as long as the liability of damage before delivery and the consequences of a return for unseen defect is on the bank.
As to whether the promise is binding to the buyer, the bank or both, it better secures the interests of all parties, the bank and the customer, to have the promise as binding. It is legally acceptable and it is up to each Islamic bank to take either opinion according to what its committee of legal observers decide."
Moudaraba
Mudaraba in essence is based on the concurrence of those who have capital with those with expertise, where the first party provides capital and the other party provides the expertise with the purpose of earning Halal profit (lawful) which will be divided between them in ratios agreed upon.
This mode achieves the interest of both parties, the capital owner and the Mudarib (agent).
* The capital owner may not have the time or the experience to turn over capital and trade with.
* The agent (the Mudarib) may not have the adequate capital to put to use his experience.
The following is an illustration of the steps of the Mudaraba contract.
The Practical Steps of Mudaraba
1. Establishing a Mudaraba project:
The Bank: provides the capital as a capital owner.
The Mudarib: provides the effort and expertise for the investment of capital in exchange for a share in profit agreed upon.
2. The results of Mudaraba:
The two parties calculate the earnings and divide the profits at the end of Mudaraba, this can be done periodically in accordance with the agreement along with observance to legal rules.
3. The participation in capital:
The bank recovers the Mudaraba capital it contributed before dividing the profits between the two parties because profit is protection of capital. In case of agreement to distribute profits periodically before the final settlement it must be on account until the security of capital is assured.
The participation in capital:
* In case of loss, the capital owner (the bank) bears the loss.
* In the event of profits, they are divided between the parties in accordance with the agreement between them with observance to the principle "profit is protection to capital".
Evidence of Legality
1. Others traveling through the land Seeking of Allahs bounty; Al-Muzzammil 20
It is no crime in you If ye seek of the bounty of your Lord.
Al-Baqara 198
2. It was proved in the "Sira" biography of the Prophet (PBUH), that before prophethood, he traveled to Syria as a Mudarib with the capital of Khadeeja (may Allah be pleased of her) and the Messenger of Allah related that after the Message approving it.
3. The companions (may Allah be pleased with them) transacted in Mudaraba and none of them was reported to have adverse opinion. There is also a consensus among the Ummah for generations on the permissibility of Mudaraba.
Mousharakah
MODES OF PARTNERSHIP
....Truly many are the partners (in business) who wrong each other: Not so do those who believe And work deeds of righteousness.
Saae 24
The Holy Hadith:
I am the third partner to the two partners unless either of them betrays his friend. If either betrays his friend, I quit from betwixt them.
Related by Abu Daoud.
The Characteristic Traits of Modes of Partnership
The partnership operation means two or more parties draw a contract to work together by the capital they contribute in condition of dividing the accruing profit between them.
The most important traits of these operations are:
* The participation in capital whether it is an asset, labour or liability.
* The partnership in work, management and disposal where the right of ownership and disposal remains to each partners.
* The partnership in the results of the operations whether profit or loss.
* The continuity in the partnership, usually to long terms.
Divisions of the Modes of Partnership
Partnership operations embrace all kinds of contract companies which the Islamic Figh divides into three kinds:
Labour Company
it is a contract in accordance to which two or more parties agree on accepting to do a job (such as trade, construction, etc.) together and to divide the accruing profit among themselves in specific percentage.
Character Company
It is a contract in accordance to which two or more parties agree on purchasing with their characters and reputation goods and commodities on credit for trading in condition of distributing the accruing profit, or loss among themselves in ratios proportionate to what each one of them bears of the debt guarantee or security.
Asset Company
It is a contract in accordance to which two or more parties agree on participating in the contribution of capital for investment and the accruing profit shall be divided among themselves in specific percentages agreed upon and they bear losses in ratio proportionate to their (contributions) shares in capital. But, profit may be distributed separate from the debt guarantee borne by each, whereas loss shall be proportional to debt guarantee.
In Asset Companies
The two partners may be equal in capital and power of disposal, this sort of asset companies is called "Mufawada Company"
The two partners may neither be equal in capital nor in power of disposal. In other words, one of the partners has more capital than the other or one partner is responsible for the company and the other is not. This kind is called "Ainan company".
It is notable that the rein companies are the most appropriate companies for the business of the Islamic banks. The other kinds of companies rarely suite the nature of business in the Islamic banks. That is because the rein company enables the Islamic bank to contribute in established or proposed projects and to authorize the other partners in all the concerns of investment and the bank contents with the role of general supervision and follow up and the right to intrude when necessary.
There are two modes of partnerships which are applied by the Islamic banks. They are:
* Permanent Partnership
* Decreasing Partnership
