Last week I explained verse 282 in Chapter 2 of the Quran covering spot and deferred payment transactions. It amazes me no end when I measure the time distance of this and the other verses related to trading and financial transactions, and the legitimacy of the commandments contained therein to this day and age.
Just imagine the environments in which God Almighty revealed such guidance, which is very much pertinent until now and the extent of their relevance will grow by the day as the world undergoes any future financial and market crises. The guidance came right in the middle of the most barren and harsh habitat with very basic necessities to support human subsistence, and traveling to earn a living was akin to risking your life — nothing comes close to the lavish amenities that we currently enjoy.
How did such golden principles — which have defied the test of time — get entrenched in the Shariah relating to transactions of finance and trade? Can any human being be so far-sighted as to establish such a watertight system that has held the Islamic financing principles unchanged, or as they say, ‘cast in stone’? Of course, this has to be from our Creator, the most wise and the most fair.
All Islamic financing and investment contracts have remained unmoved in the last 14 centuries in the midst of several man-made financial systems which were established with much fanfare and which crumbled in no time.
Take Salam for example, it seems so perfect and extremely germane to the current situation in the world, particularly in underdeveloped countries having agrarian economies. Here, the most painful story we frequently come across is about farmers in India committing suicide when they fail to wriggle out of the debt trap laid by the private lenders who charge exorbitant interest.
A small loan taken by illiterate farmers to buy seeds to grow the crop, or to meet with family expenses remains unpaid for decades in the books of the powerful private lenders operating in the area. This is because the borrower had put his/her thumbprint on a document without knowing the contents since he was in need of money.
There are cases where the third generation is still repaying the loan taken by the grandfather. In several cases, the influential lender grabs the precious land from the hapless family and yet the loan does not get squared up. Imagine the state of mind a farmer would be having in this backdrop, ie not finding any ray of hope in utter darkness, except to end up taking his/her own life.
The same scenario currently observed in most parts of rural India also existed more or less in the pre-Islam Arab peninsula, and then emerged a shining star in the shape of Salam. All afflictions faced by farmers were removed and Salam was firmly implemented. The so-called exploitative private lenders vanished from the scene and genuine buyers took their place who make a 100% payment for the agreed purchase price of the quantity of commodities with delivery by the farmers at an agreed future date and place. What a relief.
Explaining Salam characteristics further, what if a person needs certain produce from the farmer but does not have ready cash to make the upfront payment? Can a Salam contract still be executed in such a situation?
Shariah principles allow the Salam buyer to offer certain goods he/she owns as the upfront payment, provided the seller under the Salam contract accepts the same. Here, the in-kind payment in the shape of goods must be clear as to the quality, quantity, current market price and obtaining possession by the Salam seller.
The Salam seller can either use the upfront consideration received in the shape of goods, or sell them in the market and realize cash. Nevertheless, this is to be noted that the transfer of a debt cannot be considered as the payment under the Salam contract.
As discussed previously, the Shariah principles require that the full payment must be made by the buyer to the seller for the purchase of goods under a Salam contract at the time of entering into the contract. However, based on contemporary research, the scholars have agreed to extend the period of making the payment by the Salam buyer to a maximum of two to three days to accommodate the transfer of funds through banking and remittance channels. However, care should be taken that such a deferred period must not exceed the period of delivery of the goods under the contract, in case the delivery period is short.
The commodities which can be traded under a Salam contract must have characteristics that can be measured, weighed or counted and graded based on the quality but must not be attributed to a particular farm or orchard, eg the origin must not be tagged to one particular source.
What is the Shariah wisdom behind such a condition? We shall discuss this in the next article so please do not forget to come back and find out.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions of the Dubai Islamic Economy Development Centre, nor the official policy or position of the government of the UAE or any of its entities. The purpose of this article is not to hurt any religious sentiments either consciously or even unwittingly.
Sohail Zubairi is the projects advisor with the Dubai Islamic Economy Development Centre. He can be contacted at [email protected].
Next Week: Discussion on Salam shall continue.