Foreign Exchange (Forex) in Islam - Bai as-Sarf Forex Oversea I used this slide for my interview.

1. CURRENCY EXCHANGE
IN SHARIAH PERSPECTIVE
Muhammad Azim Ismail
Master in Islamic Economics (UKM)
@azim_ismail14

2. Source: GOLDMOUNT FX

3. INTRODUCTION
 Currency exchange is one of the most important
transactions for all, especially for travelers and
international economic practitioners.
 A currency is only worth in each country so a system
for exchanging has been created.
 However, currency exchange within Islam is only
permissible if done on the spot.
 Currency exchange is also known as bai’ al-sarf in fiqh
terms.

4. FIAT MONEY
 Fiat money is a currency recognized by the government but not
represented by physical commodities such as gold.
 The value of this fiat money is based on demand and supply rather than
the material value of the money.
 The foreign exchange market is a very important part of the capital
market of all countries as well as serves as an intermediary between the
domestic capital market and the world capital market and the source of
liquidity to the local capital market.
 Currency exchange rate ie foreign exchange rates disclosed in local
currency. For example, the exchange rate of MYR / USD is RM4.14 which
means the unit price of USD in Ringgit is RM4.14 also means the cost to
buy 1 USD is RM4.14.

5.  The foreign currency market business only consists of four
major currency pairs namely EUR / USD, USD / JPY, GBP / USD
and USD / CHF.
 Although the United Kingdom is a pioneer country that has
developed a sophisticated capital market in the world in the
British Pound but in current reality, USD is the world's major
currency (Schlossberg 2006).
 This exchange rate changes on demand and supply other than
other factors.
 Compressive currencies will benefit the country's economy in
general and become stronger in international competition.
 In fact, currency fluctuations are higher and faster than the
price fluctuations of goods and services in a country.

6. BAI’ AL-SARF
 Bai 'al-sarf in the past only involves gold and silver but today fiat money
has replaced both because it has an equality in function. Imam Malik in
his book, Al-Mudawwanah states, "If many people use camel skin as a
medium of exchange, I will not agree if this skin is used to buy gold in
delay.”
 It is also agreed upon by contemporary scholars. The current scholarship
agreement has issued a fatwa that fiat money has the same function as
gold and silver in the case of usury, zakat and its related. International
Islamic Fiqh Academy (Majma 'Al-Fiqh Al-Islami Al-Dawli) The 3rd Islamic
Conference of Organization in Amman, Jordan from 11 to 16 October
1986 has resolved in its conference as follows:
"Based on the fiat money (nuqd) is the i'tibari item given the value (al-
thamaniyyah) and equated its function with gold and silver in the case of
usury, zakat and everything connected with it."

7. Three basic rules and conditions of bai 'al-sarf ie
 The value of the same if the same type is like the exchange of
gold with gold and silver with silver. Similarly, the ringgit with
Ringit and Dollars with Dollars.
 The freedom of khiyar al-shart is to refer to the option to
place conditions outlined at the beginning of the contract.
This will prevent the perfect transfer.
 It must be done in a spot basis as ribawi goods are prohibited
from postponment in delivery which causes usury.

8. The Messenger of Allah prohibited buying gold with gold,
silver with silver, wheat with wheat, barley with barley,
tamar with salt and salt with salt except in the same
quantities. If besides these six items (not the same kind but
among the ribavids) sell as desired in terms of cash that is
hand in hand (al-Bukhari, Sahih al-Bukhari, Kitab al-Bai ‘).
From Abu Al-Minhal, His Majesty the Prophet S.A. said:
"Prevent you from selling silver with gold in procrastination"
(al-Bukhari, Sahih al-Bukhari, Kitab al-Bai ‘)

9. CURRENCY EXCHANGE IN
ISLAMIC LAW

10. MAZHAB OPINIONS
1. Jumhur Mazahib: Must in cash basis.
2. Imam Malik: allowed for up to three days.
If more than three days unconditionally, some of
the followers of Imam Malik (Malikiah) say that
it is damaged (facade) and some others say the
contract is still valid. If it is more than three
days (promised), the transaction is canceled
with ijmak (al-Maqdasi t.th.).

11. Majelis Ulama’ Indonesia
The National Council of Shari'ah, the
Indonesian Ulama Council (2002) stated
the transaction must complete within
two days as this period is inevitable for
international transactions.

12. Fatwa Center of America
Fatwa Center of America (2012) via the
Mufti Ikram Ul Haq states that forex is
permitted but not in online transaction
because it leaves an important legal
requirement of cash. Physical delivery
does not occur on the internet.

13. Practically, Islamic financial institutions today will
sell foreign currency to customers. After this sale
is completed, the institution will purchase the
foreign currency from the interbank side. The
amount purchased will be credited into the
customer's account after two working days (T + 2)
(Burhanuddin & Noor Suhaida 2015).

14. CONCLUSION
Only Imam Malik allowed the exchange of currencies or bai 'al-sarf within three
days. Jumhur ulama 'from Imam Hanafi, Imam Syafie and Imam Ahmad prevented
the conversion of currency except for cash. Then the contemporary fatwa of the
Indonesian Ulama Council only allowed the exchange of currency within two days
because it was considered pretext. While the Fatwa Center of America restricts
currency exchanges online as there is no cash transfer.
In the writer's opinion, the three-day period which is still regarded as cash in
Imam Malik's view and two days in the view of the Indonesian Ulema Council is
realistic in its time without denying other opinions which have their respective
arguments.
This coincides with the fiqh method, Al-Musyaqqah Tajlibu al-Taisir, that the
hardship will be the cause of lightness. When a law is difficult to practice and
lead to the deranged, the Shari'a opens a light path equivalent to its ability
(Syubair 2000). Therefore, foreign currency exchange transactions online are
allowed on the basis of opinion previously described.

15. References
Al-Quran
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 Al-Maqdasi, Ibn Qudamah. t.th. Al-Mughni. Jil. 4.Riyadh: Dar Alam Al-Kutub.
 Al-Wadi, Mahmud Husain & Samhan, Husain Muhammad. 2007. Al-Masarif Al-Ismamiyyah Al-Asas Al-Nazriyah wa Al-Tatbiqat Al-Amaliyah. Jordan: Dar Masirah.
 Ali Saleh Al-Alrussi & Hajah Mustafa Mohd Hanefah. 2007. Internet Financial and Environmental Disclosueres: An Islamic and Conventional Theoretical Perspective. The
Journal Of Muamalat And Islamic Finance Research: 83-104.
 Anas Malik. Al-Mudawwanah. 1994. Beirut: Dar al-Kutub al-Ilmiyyah.
 Anon. Forex Market Statistics. http://fxpros.net/index.php/forex-research/forex-statistics [23 Januari 2018].
 Anon. 2013. Islamic Financial System Principles & Operation. Kuala Lumpur: ISRA.
 Bacha, O.I. & Mirakhor, A. 2013. Islamic Capital Market A Comparative Approah. Singapore: John Wiley & Sons Singapore Pte. Ltd.
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 Burhanuddin Lukman & Noor Suhaida Kasri. 2015. Possession of Currency Prior to Sale: A Fiqhi and Parctical Analysis of Spot FX-1 in Malaysia.
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 Indonesia. 2002. Sharia Consulting Center. Fatwa MUI Tentang Trading Forex. http://www.syariahonline.com/v2/fatwa/mui/2674-fatwa-mui-tentang-trading-forex.html [21
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 Majma’ al-Fiqh al-Islami Organisation of Islamic Conference. 1986. Majallah Majma’ Al-Fiqh Al-Islami. Amman: OIC.
 Raqub Zaman. Modhamed Arif & Munawar Iqbal. T. th. The Foundations of Islamic Banking Theory, Practice and Education. Riba and Interest in Islamic Banking: An Historical
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 United States of America. t. th. Fatwa Center of America. Answer: Is Forex Trading and Binary Option Trading Halal or Haram in Islam. http://askamufti.com/question-
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