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Search Fatawaa


Subject : Does Conditioned Presumptive Encashment in Contracts Replace Actual Encashment

Fatwa Number : 3035

Date : 28-01-2015

Classified : Current Financial Issues

Fatwa Type : Search Fatawaa


Question :

Is encashment a condition when trading in electronic stock market ?


The Answer :

Praise be to Allah; and may His blessings and peace be upon Prophet Mohammad and upon his family and companions.
Islam has legislated reciprocal appropriation in commutative contracts to be a means of preserving rights and balancing the stability of contracts and transactions. It has concentrated on exchanging usurious funds{gold, silver, wheat, barley, dates and salt} and currency exchange more than other transactions. Our Prophet{PBUH} said: “Do not sell gold for gold unless equivalent in weight, and do not sell less amount for greater amount or vice versa; and do not sell silver for silver unless equivalent in weight, and do not sell less amount for greater amount or vice versa and do not sell gold or silver that is not present at the moment of exchange for gold or silver that is present. “{Bukhari}. Al-Imam An-Nawawi{May his soul rest in peace} said: “ The majority of Muslim scholars have agreed that it is unlawful to sell gold for deferred gold unless equivalent in weight, or to sell gold for deferred silver unless equivalent in weight, or wheat for wheat unless equivalent in weight.” The same applies to selling any two items that share the effective case of usury. “{Sharih An-Nawawi Ala Muslim(11/10) }.
Jurists have stipulated that the encashment must be real in the sense that mutual delivery happens in the same place of the transaction, but they haven`t made instant delivery a condition, rather, they stipulated that both contracting parties be present in the same place when concluding the deal even if delivery took place later. An-Nawawi{May Allah have mercy on his soul} said: “ Our fellow scholars have permitted the contracting parties to agree on selling a dinar for a dinar, then each of them produces his dinar, or sends someone to fetch it from his house and that the deal takes place before each of them goes their way. The deal is valid because encashment was concluded before their departing. This is why the Prophet{PBUH} said in a latter narration: “ Don`t sell an item which is present at the moment of exchange for an item which isn`t present. “{Sharh An-Nawai Ala Muslim(11/10)}.
The advance of humanity has led to the invention of up-to-date methods for conducting commutative transactions in general and stock exchange in particular, and this made actual encashment difficult to attain, so it was replaced with presumptive encashment in order to spare people the embarrassment and the hardship. Presumptive encashment-moral- equals actual encashment and there are similar rulings mentioned by eminent scholars such as: A debt in dollar exchanged in dinar and a mutual debt between two parties: one in dinar and the other in dollar{exchange clearing}. Al-Imam An-Nawawi said: “ The latest opinion of the Shafite school of jurisprudence is that it is permissible to exchange a debt, so if it was exchanged for that which shares the effective case of usury such as exchanging dirhams for equivalent dinars, then it is a condition that encashment takes place in the same place of the transaction. However, it is more correct not to point to the dirhams, or dinars while concluding the contract and the same applies to the encashment at the same place when exchanging a debt with that which doesn`t share the effective case of usury e.g. exchanging dirhams for a dress. “{ Minhajj At-Talibeen(1/103)}.
Presumptive encashment replaces actual encashment if it meets two conditions:
First: The acceptance of these methods and regarding them as complete encashment by the general commercial practice and international laws. Therefore, economic and legal practices should be considered in the encashment processes so long as they don`t conflict with Islamic laws. Al-Imam Ibn Qodamah{May his soul rest in peace} said: “ Since encashment is an abstract concept in Islamic law, it must be considered through the general practice such as Ihrazz{acquisition} and Tafaroq{separation}. “{Al-Moghni Li Ibn Qodamah(4/85) }. Some examples are: deposit, bank charge and drawable kite cheques. Decision No.(55/4/6) by the International Islamic Fiqh Academy states: “ Some forms of presumptive encashment which are considered by Islamic law and custom are: 1- Bank charge of a certain sum in client account in the following cases: A- Direct deposit or a bank draft B- A present stock exchange contract between the client and the bank in case the latter purchased exchange for him. C- The bank -upon request of the client-deducting a certain sum from his account and placing it in another with a different currency, in the same bank or else and in favor of the client or another beneficiary. It is imperative that banks consider the rulings of the exchange contract in light of Islamic laws. It is excused to defer the bank charge to the extent with which the beneficiary is able to actually receive the sum within the customary timelines. However, it is impermissible for the beneficiary to dispose of the currency during the excused period i.e. he can dispose of the currency after the excused period, and the sum must go into the account of both parties.2- Reception of the cheque that has a drawable balance and in the currency stipulated in the cheque upon its collection, but the bank sequestrated it.
In this regard, it is worth mentioning that the concept of World Trade has expanded in addition to the fact that the word “money “nowadays isn`t confined to cash and bills, rather, it covers every medium that facilitates the exchange of commodities and services amongst people. Current accounts and others are examples of contemporary types of money. Al-Imam Ahmad{May his soul rest in peace} said: “ If people started dealing in leather as a currency, then I would dislike selling it for gold and silver. “{Al-Modawanah(3/5)}. As for cheques that have no drawable balance, they are similar to money for cash derives its value from its purchase value, unlike gold which derives its value from itself, for receiving a cheque is receiving its value, like receiving cash.
Second: It doesn`t clash with the rulings of Islamic law as regards encashment of usurious funds for it is impermissible for it to be deferred or a debt, rather, it must be direct encashment.
Accordingly, the condition of encashment must be met in exchange contracts and exchange trading. However, hand to hand delivery isn`t a condition in cases of “ Electronic exchange trading “ as it is enough to make a transfer to the client`s bank account{Debit}, or using other methods which Islamic law and custom regard as instant encashment, not deferred one. And Allah knows best.




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