Rules Governing Sale of Debt


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Rules Governing Sale of Debt

  1. 1. INCEIFThe Global University in Islamic Finance PhD Programme The Rules and Evidence That Relate to the Sale of Debt (Al-Ahkaam wa al-Adillah Min Haythu Siltahaa al-Ba’i al-Dayn)Islamic jurisprudence and Legal Maxims FQ 6113 Semester September 2011 Mace Abdullah 1000491 1
  2. 2. Abstract This paper discusses the Islamic jurisprudence (Fiqh) applied to bai’ al-dayn (the saleof debt). It examines the ahkam (rules) thereof, as well as its parameters (dhawabit) in lightof exigencies of modern Islamic Finance (IF1) practices. Usul al-Fiqh extracts thefoundational rules to authorize IF transactions. These rules prescribe, in a more or lessorthodox manner, what IF transactions an individual, firm or market may undertake or avoid.By contrast, modern IF is concerned with economic wants and needs; specifically those ofconsumers, firms and their financial intermediaries. These wants and needs are often exigent;as is the case in liquidity management. Fiqh proscriptions are necessarily rigid; changingsometimes grudgingly under market pressures and public interest (maslahah). The wants andneeds which “push” IF forward change from time to time. Innovative products are developedand introduced in response to the demands of the modern economic world; among themcompetitive forces. Malaysia has been at the forefront of this development, but is oftencriticized for its liberality in the use of ba’i al-dayn, albeit primarily as an underlying contractin structuring various other IF products. Accordingly, the ahkam al-Shari’ah (Rules ofIslamic Law) and Fiqh relating to IF should be reviewed periodically to insure the viability ofits IFI. Key terms of the Research: 1. Usul al-Fiqh 2. Bai’ al-Dayn 3. Modern Islamic Finance1 Throughout this paper, IF shall mean Islamic Finance (which is by its epistemology distinguishable from conventionalWestern finance), and IFI shall mean Islamic Financial Institutions; which IFP shall mean Islamic Finance Products. 2
  3. 3. Purpose and Scope of the Research The purpose of this research paper is to identify and examine the Ahkam al-Shari’ahas they apply to al-bai’ al-dayn (mahkum fih or act to which the hukm is related) in light ofthe contemporary needs of modern Islamic societies and Islamic financial institutions(mahkum ‘alayh or the persons whose actions invoke the hukm or rule). Though limited inscope, this paper should serve as a good primer on the subject and a basis for further researchin the field. Because the ahkam related to bai’ al-dayn are numerous, this paper with its givenrestraints, limits its scope as follows: 1. Identify and examine the ahkam (rules) that prohibit bai’i al-dayn. 2. Identify and examine the ahkam (rules) that might permit bai’i al-dayn. 3. Identify and examine the adillah (evidences) and ‘illah (legal cause) that prohibit or restrict the use of bai’i al-dayn. 4. Identify and examine the adillah (evidences) and ‘illah (legal cause) that support the use of bai’i al-dayn. 5. Identify and examine dhawabit (parameters) for use of bai’ al-dayn. 3
  4. 4. Definitional framework Ba’i al-dayn is controversial from a Usul al-Fiqh standpoint principally because itsunderlying cause or sabab is controversial, i.e. ribaa. As will be seen, although ribaa is thestalwart prohibition of IF, debt in the financial transactions of Muslims remains controversial,possibly misunderstood in the context of modern day IF transactions. A. Ribaa. Debt, in Islaam, is largely proscribed because of its tendency to be thevessel for ribaa. Ribaa is defined differently depending on its usage. The particular form ofribaa called interest has been prohibited in other religions and societies before theestablishment of Islaam; most notably in the Law of Moses (Musa), Peace be upon him.While ribaa is not always synonymous with interest, other religions also frown upon interest,if not prohibit it completely. The Catholic theologian, St. Thomas Aquinas, drawing onScripture, condemned all interest as usury; while Martin Luther, the Protestant, likened usuryto murder (Goetz, 1952). The conceptual condemnation does not end in religions, but alsoincludes ethical and philosophical condemnations. The classical Greek philosophers, Platoand Aristotle, both prohibited interest on loans. Aristotle described this form of commerce asthe “birth of money from money” and the most unnatural form of commerce. Aristotle wrotethat money is “intended to be used in exchange, but not to increase at interest.” id.Notwithstanding its broad condemnation, it persists and is the foundation of modernconventional economic thought. In Islaam, ribaa and interest are not the same; the former being more expansive thanthe latter. Ribaa’s application is not only more expansive than interest, but as a concept, it ismuch more controversial. Muhammad Asad in his comments to his translation of Qur’annotes one possible reason: “…as is evidenced by the voluminous juridical literature on this subject – Islamic scholars have not yet been able to reach an absolute agreement on the definition of ribā: a definition, that is, which would cover all conceivable legal situations and positively respond to all the exigencies of a variable economic environment. In the words of Ibn Kathīr (in his commentary on 2:275), ‘the subject of ribā is one of the most difficult subjects for many of the scholars…It should be borne in mind that the passage condemning and prohibiting ribā in legal terms…(it) was the last revelation received by the Prophet, who died a few days later…hence, the Companions had no opportunity to ask him about the shar‘īa implications of the relevant injunction – so much so that even ‘Umar ibn al-Khattāb is reliably reported to have said: “ The last [of the Qur’ān] that was revealed was the passage [lit.“verse”] on ribā; and, behold, 4
  5. 5. the Apostle of God passed away without [lit., “before”] having explained its meaning to us” (Ibn Hanbal, on the authority of Sa‘īd ibn al-Musayyab). (Asad, 2004). It should be noted that the narration Asad attributes to ‘Umar is from the Sunan IbnMajah, Book of Inheritance, Vol. 4, #2727; Ibn Majah adds: “According to al-Zawaid, theauthorities of its isnad are reliable, but it has munqati (i.e. a “chain of transmission” that isinterrupted, broken or discontinuous) (Farooq, 2009). But, Ibn ‘Abbas narrated: “The lastAyat in the Qur’an revealed to the Prophet was that dealing with ribaa.” Sahih al-Bukhari,Vol. 6, No. 67. These athar or narrations from the Sahabah attest to their concern with itsproscriptions. Notwithstanding the proximity of the revelation to the Prophet’s, PBUH, death,his teachings on ribaa are found in the Sunnah, albeit there is no specific reference to theAyat (lit. “sign” but equivalent to “verse”) at 2:275. Lexicology. Ribaa comes from the Arabic verbal root rabaa (‫ ) ر ب ى‬and literallymeans something increased or augmented. It has secondary connotations (ishaarat) ofexcess, growth, addition, swelling, high, being big and usury (Lane, 1863). The inferenceclearly has financial connotations, i.e. what is given in expectation of receiving more inreturn; but, its general usage can apply to plants and vegetation, children, measurements,sound, etc. Technical Definitions. Ribaa has several technical meanings, which centre on thenotion that it is “any excess without any corresponding counter-value recognized by theShari’ah” (ISRA, 2010). This is principally a Hanafi definition with the Shaafi’ee madhabadding: the phrase “recognized by the Shari’ah at the time of the transaction, or with a delayin exchange of either or both counter-values.” id. Some scholars extend the meaning of ribaato any prohibited “sale” or wealth acquired illicitly, regardless of how acquired (id). IbnRushd identifies 5 bases for ribaa: (1) the grant of postponement coupled with increase; (2)excess (tafaaful); (3) delay (nasi’ah); (4) loss from hastening (the period); and (5) the sale offood before possession (Ibn Rushd 2003). The 5th category could be expanded to includesales with the absence of presence as noted below. The technical classifications of ribaa may be summarized as follows: 1. Ribaa al-Duyoon (plural of Dayn). Within this class of ribaa are instances whereribaa occurs as a result of a loan or a delay in payment. They are: a. Ribaa al-Qurood (plural for Qard or Loan), which is generally regarded as “anybenefit” a lender obtains from a loan. There is a minority view that this class includesunequal exchanges. There is khilaaf or disagreement among jurists as to whether benefit thatwas not stipulated in the loan agreement is included (id). The majority view is that if it is not 5
  6. 6. stipulated than it is permissible, if it was not customary between the parties beforehand. Thus,the absence of stipulation and custom obviate the proscription. b. Ribaa al-Nasi’ah, which is related to increase that occurs because of delay(nasi’ah is a derivative of the Arabic verb nasaa or delay). This form of ribaa occurs whenthere is a stipulation favouring increase owed to a delay in repayment. 2. Ribaa al-Buyu’ (plural for bai’ or sale) occurs in the context of a sale (or an“exchange”) that emanates from an unequal exchange of goods of the same kind or genus. a. Ribaa al-Fadl “occurs when commodities of the same genus are exchanged inunequal quantities in a spot sale.” (id). The proscription generally falls upon 6 commodities:gold, silver, wheat, barley, dates, salt “and the like.” However, there is some khilaafindicating that the proscription is on 4 (gold, wheat, dates and barley) commodities (IbnRushd 2003). Some scholars extend the hukm to other things of similar nature, but differ as tothe ‘illah (reason or cause) of the prohibition, i.e. the excess or delay (id). b. Ribaa al-Nasaa “takes place when two commodities of the same genus from thecommodities subject to usury are exchanged with deferred delivery” (id). Delayed delivery ofcommodities from the different genera is also proscribed, e.g. gold for silver or wheat forbarley. Jurists differ as to the ‘illah for the prohibition. Hanafis and Hanbalis view the causeas relating to the way the commodities are sold, i.e. by weight or volume; while the Maalikiand Shaafi’ees belief the reason is that gold and silver are monetary, while the remainingitems are foodstuff. The later rule that an increase caused by delay in the exchange of itemsof different genera is usurious (id). Qur’anic Prohibitions. It is fair to say that Qur’an does not define ribaa, butproscribes it. It is equally fair to say, that as a rule, there are many terms in Qur’an that arenot defined per se, but are left for the Prophet, PBUH, to explain contextually. Thus, we find“…And We have also sent down unto you (Muhammad PBUH) the Dhikr (Qur’an), that youmay explain clearly to men what is sent down to them, and that they may give thought.”16:44 (Al-Hilaalee/Khan 1995). The ribaa prohibited in Qur’an is generally referred to as “ribaa al-Qur’an” byscholars. The proscription largely deals with ribaa al-duyoon or ribaa al-qard, i.e. the formsof ribaa that arise from loans. Why these injunctions are essentially limited to loans is amatter of speculation. It is clear that these forms of ribaa are rather obvious and easilyidentifiable; possibly more pervasive or oppressive. The linguistic root of ribaa (‫ )ى ب ر‬is used in Qur’an 20 times, while ribaa itself isused 8 times; in 6 different Ayat (3 times in Ayat 2:275). (Saeed 1999). 6
  7. 7. Ayat 1: The first mention of ribaa in Qur’an is at 30:39 (an early Makkan Ayat, circa614-15 CE): “And that which you give in ribaa in order that it may increase from other people’s property, has no increase with Allaah; but that which you give in Zakaah seeking Allaah’s Face, then those they shall have manifold increase” (Ibn Kathir 2000). According to Ibn Katheer, this Ayat refers to the tactic giving of a gift in hopes ofreceiving back from the recipient, more than was given. He references at-Tabari andattributes this interpretation to Ibn Abbas, Mujaahid, Qataadah, ‘Ikrimah, ash-Sha’bi andothers (id). There is some differences as to this Ayat’s interpretation. Some have translatedribaa as “gift” (Saeed, 1999). See also (Al-Hilaalee 1995). With such an unrestricted view ofthe term, and without reference to its context, ribaa’s prohibition could also apply tocharitable acts done in anticipation (or demand) of larger favors in return. Others translate theayat in a manner that indicates that “giving” (i.e. paying) ribaa to the people is unacceptable(Usmani, 2010). Ayat 2: The next Ayat on ribaa in Qur’an (3:130) was revealed in Madinah, after theBattle of Uhud, circa 3AH/625CE, nearly 11 years after the Ayat at 30:39: “O you who believe! Do not consume ribaa doubled and multiplied, but fear Allaah that you may be successful” (Ibn Kathir 2000). Ibn Kathir comments that the prohibition is directed at the practice in Jaahiliyyah (thepre-Islamic period in Arabia) of lenders accruing increase on the loans when borrowers wereunable to repay the loans in a timely manner; mentioning that “the creditor would requireinterest and this would occur year after year until the little capital becomes multiplied manytimes” (id). This has been substantiated by reports from Ibn Arabi, wherein he has reportedthat “ribaa was well known among the Arabs. A person would sell something on a deferredpayment basis. Upon maturity, the creditor would say: “Will you pay or will you add anamount to the debt?” These reports clearly show that ribaa was practiced in pre-IslamicArabia (Saeed 1999 and Ibn Kathir 2000). Moreover, Ibn Hajar is reported to have noted thatit was common practice in pre-Islamic Arabia to see a loan amount doubled for each year itwas delinquent (Saeed 1999). The use of “doubled and multiplied” carries with it aconnotation of what modern finance regards as usury. Ayat 3: The next Ayat revealed chronologically on ribaa was a Madany Ayat directedtowards the Jews (note above that the current version of the Torah (Taurat) allows Jews tocharge interest to “strangers” and this Ayat appears to be a reprimand to that and otherperversions). Ayat 4:161 states: 7
  8. 8. “And their taking of ribaa though they were forbidden from taking it, and their devouring men’s substance wrongfully. And We have prepared for the disbelievers among them a painful torment” (Ibn Kathir, 2000). Ibn Kathir states that “Allaah prohibited the Jews from taking ribaa, yet they did sousing various kinds of tricks, ploys and cons, thus devouring people’s property unjustly (id).The Torah, in the books of Exodus (22:25) Leviticus (25:36-37) and Deuteronomy (23:19-20), all part of the Law of Moses, AS, condemns both interest (as increase) and usury(multiplied increase) as applied to those regarded as “brothers,” but suspiciously permits it asto “strangers.” The final revelation regarding ribaa in Qur’an was revealed (2:275-76 and 2:278), asnoted above, just a few days before the death of the Prophet, PBUH, circa 10AH/632CE. Itcontains, by far, the sternest warning regarding ribaa: Ayat 4: “Those who eat ribaa will not stand (on the Day of Resurrection) except like the standing of a person beaten by Shaytaan leading him to insanity. That is because they say: ‘Trading is only like ribaa.’ So whosoever receives an admonition from his Lord and stops eating ribaa, shall not be punished for the past; his case is for Allaah (to judge); but whoever returns (to ribaa), such are the dwellers of the Fire-they will abide therein. Ayat 5: /276/ Allaah will destroy ribaa and will give increase for sadaqaat. And Allaah likes not the disbelievers, sinners…Ayat 6: /278/ O you who believe! Have taqwaa of Allaah and give up what remains from ribaa, if you are (really) believers” (id).It should be noted, that while ribaa is not specifically mentioned in Ayat 279, a stark warningis given relating to it: “And if you do not do it, then take a notice of war from Allaah and HisMessenger but if you repent, you shall have your capital sums. Deal not unjustly (by askingmore than your capital sums), and you shall not be dealt with unjustly (by receiving less thanyour capital sums). (Al-Hilalee, 1995). Sunnatic Prohibitions. The more difficult to recognize forms of ribaa arethose proscribed in the Sunnah, i.e. those that are called “ribaa al-Sunnah.” Ibn al-Qayyimcalled this form the “hidden ribaa” (Al-Zuhaylee 2007). This may have been the true sourceof ‘Umar’s lamentation noted herein above by Asad. There was initially some khilaaf as thescope and nature of the prohibition of ribaa contained in the Sunnah. Ibn ‘Abbas,’Usama ibnZaid, al-Zubayr and Ibn Jubayr and others, argued that the only ribaa forbidden withoutdoubt was that involving deferment or delay. Later, the Sahabah arrived at ijmaa’ 8
  9. 9. (consensus) as to the broader prohibitions we see today (Al-Zuhaylee 2007)2. And broadindeed they are; both in scope (the branches) and in breathe (culpability), as can be seen bythe last two ahadith under General category 1 below. Both ahadith take on a renewedmeaning in light of the modern proliferation of Islamic Financial Products (IFPs). There are a great number of ahadith that help define ribaa al-Sunnah and itsproscriptions. Without discussing the polemics that surrounds the assorted ahadith, some ofthe more prevalent ones are categorized below: Hadith Group 1: General Proscriptions  “All of the ribaa of jahiliyyah (days of ignorance before his coming) is annulled. The ribaa that I annul is our ribaa, that accruing to ‘Abbas ibn ‘Abd al Muttalib (the Prophet’s uncle); it is being cancelled completely.” (Muslim, Vol.2, #1218; also Abu Dawood, Vol. 2, #3328). This ribaa is based on debt or duyoon.  “There will certainly come a time for mankind when everyone will take ribaa and if he does not do so, its dust will reach him.” (Abu Dawood, Vol. 2, #3325; see also Ibn Majah, Vol. 3, #2278).  “Ribaa is seventy types, the least of which is equal to one having sexual intercourse with his mother.” (Ibn Majah Vol. 3, #2274; see also al-Hakim). It should be noted that this Ibn Majah’s version has a weakness in its isnad or chain of transmission and is regarded as da’if (weak). The latter, however, has been graded Sahih (authentic), see Bulugh al-Maram #696.  “May Allaah curse whoever consumes ribaa, whoever pays ribaa, the two who are witnesses to it and the scribe who records it.” (Muslim Vol. 3, #1219; see also Ibn Majah, Vol. 3, #2277). Hadith Group 2: Ribaa al-Nasi’ah  The Prophet said: “The selling of a dinar for a dinar and a dirham for a dirham (is permissible)…There is no ribaa except in nasiah [waiting].” (Sahih Bukhari, Vol. 3, #386).  Narrated Samura bin Jundub: “The Prophet, PBUH, forbade selling animals for animals when payment was to be made at a later date.” (Bulugh al-Maram #704).2 Ibn Rushd believes that the khilaaf persists. 9
  10. 10.  Narrated Abu al-Minhaal, who asked al-Baraa’ bin ‘Aazib and Zaid bin Arqam, who both stated: “Allaah’s Messenger, PBUH, forbade the selling of silver for gold on credit.” (Sahih Bukhari, Vol. 3, #387; see also Al-Lu’lu’ wal-Marjaan, Vol. 2, #1022).Hadith Group 3: Ribaa al-Nasaa  “There is no ribaa in hand-to-hand [spot] transactions.” (Muslim, Vol. 3, #3878).  “Do not sell gold for gold except 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.” (Sahih Bukhari, Vol. 3, #385; also Muslim, Vol. 3, # 3845, Tirmidhi, Nasa’i and Musnad Ahmad). The underlined portion has been translated: “…do not sell ready money some of it to be given later.” See Bulugh al-Maram #697.  “Gold for gold, silver for silver, wheat for wheat, barley for barley dates for dates, and salt for salt - like for like, equal for equal, and hand-to-hand; if the commodities differ, then you may sell as you wish, provided that the exchange is hand-to-hand.” (Muslim, Vol. 3, # 3853; also in Tirmidhi).  “Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, salt by salt, like by like, payment being made hand to hand. He who made an addition to it, or asked for an addition, in fact dealt in ribaa. The receiver and the giver are equally guilty.” (Sahih Muslim, Vol. 3, # 3854).  “The bartering of gold for silver (1) is ribaa, except if it is from hand to hand and equal in amount, and wheat grain for wheat grain is ribaa except if it is from hand to hand and equal in amount, and dates for dates is usury except if it is from hand to hand and equal in amount, and barley for barley is ribaa except if it is from hand to hand and equal in amount.” (Sahih al-Bukhari, Vol. 3, # 344). 10
  11. 11.  “The Prophet forbade the selling of gold for gold and silver for silver except if they are equivalent in weight, and allowed us to sell gold for silver and vice versa as we wished.” (Sahih al-Bukhari, Vol. 3, # 388). Muhsin Khan notes that some said “gold for gold.”  “Don’t sell gold for gold unless equal in weight, nor silver for silver unless equal in weight, but you could sell gold for silver or silver for gold as you like.” (Sahih al-Bukhari, Vol. 3, # 383).Hadith Group 4: Ribaa al-Fadl  From Abu Sa’id and Abu Hurayrah: A man employed by the Prophet, peace be on him, in Khaybar brought for him janib [dates of very fine quality]. Upon the Prophet’s asking him whether all the dates of Khaybar were such, the man replied that this was not the case and added that “they exchanged a sa’ (a measure) of this kind for two or three (of the other kind)”. The Prophet, peace be on him, replied, “Do not do so. Sell [the lower quality dates] for dirhams and then use the dirhams to buy janib. [When dates are exchanged against dates] they should be equal in weight.” (Sahih al-Bukhari, Vol. 3, # 499; also Sahih Muslim, Vol. 3, # 3869; Muwatta, No. 1305-1306 and Nasai)  From Abu Sa’id: Bilal brought to the Prophet, peace be on him, some barni [good quality] dates whereupon the Prophet asked him where these were from. Bilal replied, “I had some inferior dates which I exchanged for these - two sa’s for a sa’.” The Prophet said, “Oh no, this is exactly ribaa. Do not do so, but when you wish to buy, sell the inferior dates against something [cash] and then buy the better dates with the price you receive.” (Sahih Muslim, Vol. 3, # 3871; also Musnad Ahmad)  Some juicy dates were presented to the Prophet. The Prophet’s dates from [his own orchard] at al-‘Ula were of the dry kind. He asked: “from where have you got these dates?” People replied: “We have bought one sa’ of this with two sa’s of our dates.” He said: “don’t do it. Its not right. But sell your dates and buy of this according to your need.” (Sunan al-Nasai, Vol. 7, # 272). 11
  12. 12. B. Bai’ al-Dayn. Bai means sale. Dayn means debt. Hence, bai-al-daynconnotes the sale of debt. In the modern context, it most notably occurs when debt basedinstruments are sold for liquidity purposes. The sale may be to the original creditor or to athird party. In either event, the underlying prohibition is primarily based on the prohibitionagainst ribaa. Lexicology. Bai’: (‫ )بعي‬has the linguistic meanings of: selling or buying;exchanging or exchange of property; gaining mastery over someone; superseding oroccupying their place also by superior power or force; making a covenant, an engagement, acontract (e.g. promising allegiance, swearing, oaths); hire or hiring of land; sealing the deal,also striking together the hands of two contracting parties in token of the ratification of sale;and manner of selling/buying n article of merchandise (Lane 1863). Dayn: (‫ )د ي ن‬has linguistic origins meaning to: obey or become obedient; take orreceive a loan or borrow; buy on credit or incur a debt; clear or quit; disposition; actaccording to custom; be held under authority or be in authority; become habituated,accustomed to something; confirmation; death (because it is a debt everyone must pay); aparticular law or statute; system; custom, habit, or business; a way, course, manner ofconduct or acting; or repayment or compensation (id). Thus, the literal meaning of bai’ al dayn is the exchange or sale of a future obligationor liability. The obligation is generally personal and may result from a financial or non-financial obligation (ISRA 2010). Technical Definitions. Bai’: Though there are some minor differences betweenscholars as to the definition of bai’, a fairly comprehensive definition might be: “theexchange of any lawful property of value (mal mutaqawwam) for another such item so thatownership of each item is transferred to the other party or to permanently exchange theownership of a tangible asset or a permissible benefit for financial compensation” (ISRA2010). Ibn Rushd notes that exchanges are of 3 types, i.e. those that: (1) are exchanges ofproperty for property; (2) exchanges of property for liability (dhimma); and (3) exchanges ofliability for liability (Ibn Rushd 2003). Hence, the reference to “financial compensation” inthe above definition. He further notes that each of these 3 types may be handled in one of 3ways: (1) spot for both parties; (2) delayed for both; and (3) immediate for one party anddelayed for the others. Thus, there are 9 forms of bai’ according to Ibn Rushd (id). 12
  13. 13. There are numerous sub-categories of bai’, e.g. those relating to usufruct, options, etc.Al-Zuhaylee juxtaposes 6 ethical features onto the definition of sales: (1) avoidance ofexcessive profits; (2) truthful and complete disclosure; (3) ease of conduct (avoidance ofharshness in dealings); (4) avoidance of swearing or taking the name of Allaah in oath in adeal (even if truthful); (5) frequent paying of sadaqat to atone for any negligence ofmisrepresentation in dealings; and (6) documentation and witnessing (as instructed by AllaahTa’ala at 2:282). It should be noted that exchange (sarf) and sale (bai’) are often used interchangeablyin the literature. Yet, there meanings can have slightly different connotations injurisprudence. The former (exchange) has a connotation of giving up specific property inreceipt of property other than money in a more or less simultaneous manner. While the latterhas the connotation of a seller and buyer who transfer title to property for consideration orpayment or promise for payment of a specific price in the present or future (Black 1979).Both carry connotations of contractual substance and transfer of all right, title and interest inthe properties. Moreover, Ibn Rushd points out that exchanges have 2 threshold limitations onthem, i.e. an absence of delay (nasi’ah), i.e. immediate delivery; and the absence of excess(tafaadhul), or the stipulation as to similarity (Ibn Rushd 2003). Moreover, he deals with sarfseparately in his treatise (id). Dayn: From a technical standpoint, dayn is synonymous with debt; which may betaken in two senses: (1) private or any personal monetary liability resulting from sale,damage to another’s property or personal injury to another, a loan taken, of an obligation toAllaah Ta’alaa; and (2) general or an absolute obligation of a future liability (ISRA 2010). Bai al-Dayn: Bai’ al Dayn technically is: “...the sale of something for which an obligation of future delivery is undertaken in return for something on the same terms; neither debt is incurred before the other...the sale of a prospective liability for a prospective liability...(or) a debt which is sold as such and one which is taken over by another in respect of future liability...” (id). Thus, a distinction must be made as to the form of transfer of debt, i.e. whether it issold or exchanged. The general categorization of transferring debt is called al-Hawaalah,which ostensibly includes both the sale of debt (bai’ al-dayn) and the exchange of debt (baial-kaali’i bil kaali’i). Further, Al-Zuhaylee points out that certain forms of debt clearances(al-Muqaassah) are permissible (Al-Zuhaylee 2007). 13
  14. 14. Qur’anic Prohibitions. Bai’: Exchanges and sales are generally permissible. Buyoonare generally permissible on the basis of Qur’an; encompassing all types of contracts forsale/exchange unless prohibited by Shair’ah (Hasan 2005). The following Qur’anic evidencesare applicable to sales and exchanges (Al-Zuhaylee 2007):  “But Allaah has permitted trade...” 2:275  “But take witnesses whenever you make a commercial contract...” 2:282  “But let there be among you traffic and trade by mutual good will...” 4:29  “It is no crime for you to seek the bounty of your Lord...” 2:198 Dayn: Similarly, debt is permissible, as stated in Qur’an. Allaah Ta’ala clearly statesin Qur’an: “When you contract a debt for a fixed period, write it down…Let him who incursthe liability dictate…” (Al-Hilalee 1995). This is a case of a text with plain meaning oribaarat al-nass. There is little need for deep reflection to ascertain that debt is permissible(Nyazee 2003). Bai’ al-Dayn: The specific restriction on the sale of debt is ribaa, i.e. the restrictionimposed on it that is in addition to all other restrictions placed on sales or exchanges. Statedanother way, a sale or exchange of debt that meets all other requirements for a legitimate saleor exchange will not fail except that it contains ribaa. Ibn Rushd identifies 4 general causes of vitiation in sales/exchanges, i.e.: (1)prohibition of the commodity being sold/exchanged; (2) the presence of ribaa; (3) hazard oruncertainty (gharar); and (4) any stipulated condition that leads to one of the last two or bothof the above (Ibn Rushd 2003). And it can be surmised from the Ayat at 2:282, that any salewherein a delay is part of the transaction, necessitates a writing: “When you contract a debtfor a fixed period, write it down…Let him who incurs the liability dictate…” (Al-Hilalee1995). Thus, it is clear that uncertainty (gharar), delay (nasi’ah) and the potential for excess(tafaadhul) combine to require “a writing” in order to avoid ribaa. Sunnatic Prohibitions. Bai’: The Prophet, PBUH, accepted trading during his time. He stated: “The truthfuland honest trader is among the prophets, the righteous and the martyrs” (Al-Tirmidhi). Hewas once asked: “Which are the best forms of income generation?” He replied: “A man’slabor and every legitimate sale” (Ibn Majah). A legitimate sale must be by mutual consent(the so-called meeting of “minds”). (Al-Zuhaylee 2007). Moreover, as noted herein above,the Prophet, PBUH, has placed additional restrictions on certain exchanges of commodities(so-called “usurious sales”), including gold, silver, wheat, barley, dates and salt. Although 14
  15. 15. there is some khilaaf on the issue, scholars largely include currency in the usurious sarfcategory (Ibn Rushd 2003). Dayn: The Prophet, PBUH, both used debt and authorized its use. It is said that debtis encouraged (mandoob) for the lender and permissible for the borrower. That opinion isbased on several ahadith (among others) as follows (Al-Zuhaylee 2007):  “Every two loans extended by a Muslim to another count as one charitable payment” (Ibn Majah with marfoo isnad ending with Ibn Masood).  “On the day I ascended to heaven, I saw a writing on the door of paradise that read: ‘Every charity is rewarded ten-fold and every loan is rewarded eighteen times.’ I said: ‘O Jibreel, why is a loan rewarded more than charity?’ He said: ‘Because a person may ask for charity when he does not need it, but the borrower only borrows in cases of dire need’” (Ibn Majah). Bai’ al-Dayn: There is ijmaa’ that debt may be transferred (hawaalah) through eitherextinguishment or novation (substituting one debtor for another). Debt may also be cleared(inqas) through a form of offset (muqaassah). Each has textual evidence in the Sunnah. Thus,there is ijmaa’ as to the legality of both hawaalah and muqaassah in general (Al-Zuhaylee2007). Hawaalah. The literal meaning of hawaalah comes from the Arabic word tahawwulor tahwil, which means to change, transfer or remove. Because the hawaalah is in the natureof a contract, the general rules of contracts apply and the parties must be of sound judgmentand capable of contracting. Moreover, the underlying debt must be permissible debt. The are two types of hawaalah:  Hawaalah muqayyadah, often referred to as “restricted” is generally accepted by all mudhahib and exists when the transferee (muhal alayhi) is indebted to the transferor (muhal) prior to the hawaalah.  Hawaalah mutlaqah, referred to as “unrestricted,” wherein the muhal alayhi is not indebted to the muhal, but nevertheless accepts the transfer of the debt, either with or without the consent of the creditor (muhil). Thus, there is no linkage of a pre-existing debt to the debt being transferred. The legitimacy of hawaalah is traced to the Prophet, PBUH, is reported by al-Bayhaqee, Ahmad and all 6 major books of ahadith to have said: “Delinquency of richdebtors is a form of transgression, so if one of you has his debt transferred to a rich person,let him accept the transfer of debt.” 15
  16. 16. Typically, in conventional financial law, once a debt is transferred, it can only bevoided and re-established under very limited circumstances, e.g. where there has been fraudor deceit. Similarly, in Fiqh, the transfer may be voided, and recourse granted, only undervery limited circumstances, e.g. death or bankruptcy of the transferee (muhal alayhi). This isbased on the athar of ‘Ali ibn Abi Talib wherein the grandfather of Sa’id ibn al-Musayyab“was owed a debt by ‘Ali. The creditor then transferred the debt through hawaalah, but thetransferee died shortly thereafter. When the creditor then informed ‘Ali that the transfereedied, he told him ‘you chose him over us, so stay away’” (id). Thus, the Hanbalis, Shafi’ees and Malikis have ruled that if the creditor (muhal)consents to the transfer, he no longer has a right to recourse against the originaldebtor/transferor (muhil), so as to demand repayment due to death or bankruptcy of thetransferee. However, if the creditor stipulates a condition that the transferee must be in goodfinancial position at the time of the transfer and then discovers that he was in fact facingfinancial difficulties, then the Malikis and Hanbalis rule that he may again seek repaymentfrom the original debtor. They based this stance on the hadith: “Muslims are bound by theirconditions.” (Al-Tirmidhi and Al-Hakim). (id). Otherwise, a debt transfer may be terminatedin any of the following manners: repayment, death of creditor or debtor, gift, charity andabsolution (id). Hanafi Fiqh allows for recourse by the creditor (muhal) as against the originaldebtor/transferor (muhil) on the:  Death or insolvency (muflis) of the muhal alayhi (transferee).  Denial or refusal of payment by the muhal alayhi.There are also conditions that the debt be enforceable (lazim), fully established as a liability(mustaqir) and the exchanged debts are similar in all major respects, e.g. nature, amount anddue dates. There exist some khilaaf among the mudhahib as to issue of the consent required ofthe parties in the hawaalah transaction. Hawaalah is essentially a 3-way transaction. As toconsent, the mudhahib differ as follows:  Hanbalis require only the consent of the muhil (this appears to apply most strongly where the muhal alayhi (transferee) is indebted to the muhil (transferor).  Malikis and Shafi’ees require the consent of both the muhil (transferor) and the muhal (transferee). 16
  17. 17.  Hanafis require that the muhil (transferor) obtain the consent of the muhal (transferee) and the muhal alayhi (creditor), i.e. all three parties must agree. Muqaassah. There are two kinds of muqaassah:  Mandatory Obligatory automatic offset (al-Jabariyyah), which occurs when two parties have corresponding debts owed to each other of the identical genus 3, characteristics, amount and date of maturity.  Mandatory offset on demand (al-Talabiyyah) or that which results from discharge prompted by a request from the superior creditor, i.e. better quality or higher amount. Any additional right or privilege should be relinquished.  Voluntary or contractual offset (al-Ittifaqiyyah) or discharge by mutual consent, which occurs when two parties have debts owed to one another that do not have “unity” of genus or characteristics, but are nonetheless offset by mutual consent with any difference being paid (Id). The legitimacy of muqaassah, is based on the hadith reported by Ibn ‘Umar: “’I cameto the Prophet, PBUH, and said that I sell camels in Baqee’ for a price named in gold coins,but collect in silver, and vice versa.’ The Prophet, PBUH, said: ‘There is no harm to do so ifthe exchange is carried out according to the exchange rates of that day, and as long as youpart without any debts between you.’” (Ahmad, Ibn Majah, Abu Dawood, Trimidhi and An-Nasa’i). (Al-Zuhaylee 2007). Muqaassah is widely accepted by the jurists, except when it involves any of thefollowing attributes:  A violation of any other Hukm Shair’ah or Islamic rule of law.  It involves currency exchanges after their sessions (i.e. after-the-fact).  Clearance of the price or object of a Salaam contract.  It has aspects which leads to the suspicion of ribaa (Id). Development of Fiqh from Secondary Sources The development of Fiqh in the area of bai’ al-dayn has been largely principle based.Where rules can be agreed upon unanimously, there has arisen ijmaa’. However, where therehas not been ijmaa’ (which is often the case), then principles have been used to extractahkam, based on qiyas, maslahah, etc (the so-called rationale sources).3 Genus refers to the nature of the item being transferred, i.e. whether the debt is for fungible or non-fungible items. Fungiblegoods are commodities that can be measured with some precision and exchanged, replaced or substituted without detrimentto either party. Non-fungible goods cannot be. 17
  18. 18. A. Application of Secondary Sources of Fiqh. There are in essence, 4 broad typesof bai’ al-dayn (although they are technically “transfers” or exchanges and not sales), i.e. 2on cash basis and 2 with a deferred price. Hence, they are: (1) transfer back to the debtor forcash; (2) transfer to a third party for cash; (3) transfer to the debtor for a deferred price; and(4) transfer to a third party for a deferred price (ISRA 2011). As noted above, the transfer isconsummated either by hawaalah (extinguishment or novation) or muqaassah (offset orclearance-inqas) on the basis of ijmaa’ or qiyas. In general, the sale of debt is permissible within certain parameters (dhawabit). Theview of most Hanafi, Hanbali and Shafi’ee scholars is that the sale of debt to a non-debtor or3rd party is not permissible (ISRA 2011). However, the Malikis and some of the othermudhahib allow selling debt to 3rd parties if the following conditions are met (id):  The seller is able to deliver the debt;  The debt must be mustaqir (confirmed) and the contract is performed on the spot basis;  The debt does not emanate from the sale of currency, gold or silver to be delivered in the future (nasaa) and the payment is not of the same type as debt (unless the rate is the same, so as to avoid ribaa).  The debt should be goods that are saleable, even before received (i.e. not ribawi4 food items). Ijmaa’. Ijmaa’ is consensus upon ijtihad. A full discussion of its attributes is beyondthe scope of this paper. Sufficient at the moment, is to define it as “the unanimous agreementof the mujtahidun of the Muslim community of any period following the demise of theProphet Muhammad on any matter” (Kamali 2000). It finds authority in Qur’an and Sunnah.For example, Ayat 4:59 states: “O you who believe! Obey Allaah and obey the Messengerand those of you who are in authority.” And in Ayat 4:83: “When there comes…some mattertouching (public) safety or fear…if only they had referred it to the Messenger or to those withauthority among them, the proper investigators would have understood it for them…” (Al-Hilalee 1995). And in the Sunnah we find numerous references, including: “My communityshall never agree on an error” (Ibn Majah, Vol. 2, #3950). Debt is permissible by ijmaa’ or consensus (Al-Zuhaylee 2007). Al-Shafi’ee ruled:“The general rule for all sales is permissibility as long as they are concluded by consentingcapable decision-makers, except for what the Messenger of Allaah (PBUH) has forbidden, or4 Ribawi food items are rice, wheat (barley), salt and dates and has by some scholars been extended to all fungible fooditems. 18
  19. 19. what is sufficiently similar to that…and anything different from those is permissiblefollowing the permissibility of sales stated in the Book of Allaah Almighty.” (id). The obvious exception is the trading of debts for debts (id). Ibn Rushd notes that“delay from both sides is not permitted by ijmaa’; whether or not it involves property orliability. He considers this form of exchange a “proscribed exchange of debt for a debt” orwhat is commonly referred to as bai’ al-kali bai’ al-kali (Ibn Rushd 2003). As to muqaassah or debt clearance, there is ijmaa’ as to its permissibility based on thehadith noted hereinabove. However, there is ikhtilaaf or differences on the minor point as towhether the muqaassah is obligatory or voluntary, with the Maliki madhab requiring avoluntary action by one party to effectuate the clearance (Ibn Rushd 2003). Qiyas. Although there is ijmaa’ as to the permissibility of hawaalah and muqaassah,there is khilaaf as to how and when they apply to the transfer of debt. The differences are duein large part to the methodologies of qiyas used by the various mudhahib (schools of law).The following summarizes the differences regarding hawaalah, which may be verbal orwritten (Al-Zuhaylee 2007): 1. Transfer back to the debtor for cash. The majority of jurists allow this type oftransfer of debt by qiyas al-shabah or analogy based on semblance (Ibn Rushd 2003). That isto say that it is allowed by establishing actual presence of that which is to be transferred andpossession by right in the debtor. Thus, it is an exchange of two counter-valued rights (that ofthe creditor and debtor), both present and possessed and without likelihood of dispute (ISRA2011). Ibn Rushd refers to this type of transfer as rescission (iqaala). Although Malik viewedit as something of ‘inah (dual sale), the majority of jurists, according to Ibn Rushd, permittedit except in 2 instances: (a) when the repurchase occurs within the original payment periodfor a price that is less than the original amount due; or (b) the repurchase is for a higher pricethan the original amount due with a period of delay longer than the original due date (IbnRushd 2003). 2. Transfer to a third party for cash. This is permissible according to Shafi’ee andMaliki scholars, provided certain conditions are met. Among them are: (a) payment should beon the “spot” basis; (b) the debtor is present; (c) the debtor must confirm the transfer; (d) thedebtor must have legal capacity; (e) if payment is made by dayn, it must be at par; (f) if thedebt is gold, it cannot be sold for silver; and (g) if the dayn is goods, they must be tradablebefore taking possession (ISRA 2011). Ibn Rushd notes that there is khilaaf as whether theconsent or confirmation of the transfer in (c) above must be bilateral, i.e. by both transferorand transferee (Ibn Rushd 2003). 19
  20. 20. 3. Transfer to debtor for a deferred price. This type of transfer is held impermissibleby the majority of jurists, including the Hanafi, Maliki and Shafi’ee mudhahid. IbnTaymiyyah and Ibn al-Qayyim of the Hanbali school, however, allow it, notwithstanding itsform of bai’ al-kali bai’ al-kali (ISRA 2011). And Al-Zuhaylee notes that the Hanafisclassify 3rd party transfers as either restricted or unrestricted. As previously noted, restrictedtransfer would require the transferor to tie the transferred debt to a debt owed him by thetransferee. Conversely, an unrestricted transfer would not (Al-Zuhaylee 2007). He suggeststhat there is ijmaa’ on the restricted transfer 4. Transfer to a 3rd party for a deferred price. This type of transfer is permitted by theHanbali jurists, Ibn Taymiyyah and Ibn al-Qayyim. It is largely deemed impermissible for allothers. Its use generally involves dayn based on goods. Maslahah. The International Council of Fiqh Academy (OIC), in its 15th session inMasqat, Oman, held in al-Muharram 1425AH/March 2004, revolved that there was ijmaa’ onthe issue that Islamic legal rulings are based on ‘acquiring benefits and averting harm.’ Itfurther resolved the following al-maslahah al-mursalah is the preservation of the objectivesof the Shari’ah: the protection of religion, life, intellect, lineage and property. Theseobjectives are general and flow from the objectives (maqasid) of the Shari’atul Islaamiyyahor Islamic Law. And it further noted that there are priorities for applying maslahah, i.e. theessentials, the needs and the complementaries. The OIC noted: “Maslahah mursalah has broad applications in the affairs of the society, including in economics, social discipline, management, judiciary and others. Thus, from the research presented in this session, we can conclude that the Shari’ah is perpetual in nature, i.e. its rulings can accommodate the demands of classical times, contemporary times and beyond” (OIC 2004).Al-Ghazali further defined maslahah as the consideration which secures a benefit or preventsharm, but is at the same time, harmonious with the aim and objectives of the Shari’ah (ISRA2011). Most modern Islamic financial systems are credit based systems, i.e. banks play thecentral and fundamental role in the intermediation process by lending vis-à-vis capital orequity markets. Islamic banking (IB), because of its features, faces additional challengeswhen seeking to match the maturities and demands of its liabilities of the depository systemwith the asset performance side of its balance sheets. The inability to do so results in a“mismatch” and liquidity shortfalls. Liquidity management lies at the heart of confidence inany financial system. Confidence in the system is essential to its survival. IB, in striving to 20
  21. 21. meet its liquidity needs, has found itself in need of liquidity management “tools” that oftenrequire creating a “money market” for disposition of financial assets in order to meet liquidityneeds. IF, since its nascent beginnings, has sought to avoid the use of conventional debtbecause it is laden with ribaa. Because of the dominance of conventional banking (CB), mostliquidity management “tools” are debt-based. IF struggles to develop Shari’ah-compliantliquidity management tools and Islamic money markets (IMM). Even more important thanthe liquidity needs of individual banks is that of central banks, which must conduct itsmonetary policy activities through open market operations. Thus, Malaysia, for example, hasdeveloped and IMM with liquidity management tools based on IF principles. It has both aninterbank money market (used by banking institutions, e.g. the central bank, commercialbanks, investment banks, and discount and brokerage houses, to borrow and lend amongthemselves) and a broader platform for trading a variety of money market instruments (id). Malaysia’s interbank money market includes: mudharabah, commodity murabahah(largely centered around Malaysia’s Suq al-Sila or commodity trading platform within itsBursa) and wakalah investing modes in conformity with its central bank’s (Bank NegaraMalaysia or BNM) guidelines. The second component of the IMM in Malaysia, the tradingplatform, caters to the needs of a broader spectrum of money market participants, includingthe banking institutions noted above, as well as unit trust funds, mutual funds, ETFs, pensionfunds and takaful operators. The money market instruments traded include: Government Investment Issues (GII),Islamic Treasury Bills (ITB), Bank Negara Monetary Notes (BNMN), Islamic NegotiableInstruments (INI), Negotiable Islamic Debt Certificates (NIDC), Islamic NegotiableIstruments of Deposit (INID), Sukuk Bank Negara Malaysia Ijarah (SBNMI), IslamicAccepted Bills (IAB), Sell and Buy-Back Agreements (SBBA), Cagamas Sukuk and variousIslamic corporate sukuk (id). All of the above include some aspect of bai’ al-dayn and someare based on bai’ al-inah. Because of these pressing needs on the financial systems that support the largersocieties of the Islamic world, consideration and concessions have been made in IF’s earlystages of development. This approach is buttressed by two juridical evidences. First is that ofthe practice of the Prophet, PBUH. Where there is no clear choice between two permissiblemeans, it is mandub or recommended to the take the easier of the two. This is based on thehadith, that whenever the Prophet, AS, was faced with choosing between 2 lawful things, healways chose the easier one. Al-Muwatta, Chapter 47, No. 2: 21
  22. 22. Urwa ibn az-Zubayr Yahya related to me from Malik from Ibn Shihab from Urwa ibn az-Zubayr that Aisha, the wife of the Prophet, may Allah bless him and grant him peace, said, "The Messenger of Allah, may Allah bless him and grant him peace, did not have to choose between two matters, but that he chose the easier of them as long as it was not a wrong action. If it was a wrong action, he was the furthest of people from it…" The second proof comes from modern day Fiqh, wherein it is opined that it is notobligatory to object to a matter, because one of the conditions for objecting to a matter is thatthe Shari‘ah jurists must unanimously agree that it is proscribed. B. Contemporary Rulings and Fatawah. There are a number of fatawah (plural forfatwa) issued by several Islamic organizations specializing in Fiqh as it is applied to IF. Afatwa, in its technical sense, is an ruling issued by an Islamic law specialist on a particularissue (Lahsasna 2011). Numerous fatawah are issued each year by these organizations, someofficial and other unofficial; some individual and others collective. Additionally, most IFI arerequired to have Shari’ah advisory boards or councils. Because there is much work to bedone in the harmonization of juridical rulings, most fatwa today are referred to as resolutions(implying their limited application to a particular IFI). Nonetheless, the importance of theseorganizations and individuals to the IFI and to the development of IF should not bedownplayed. Their role has been both instrumental and crucial to the development ofinnovative IF products that meet the needs of IFI and Muslim society as both grow andprosper under the auspices of IF. This is particularly so in the area of ribaa and bai’ al-daynas numerous unclear matters have arisen during IF’s nascent years (id). The taxonomy of fatawah in the area of bai’ al-dayn is beyond the scope of thispaper. However, mention of the key individuals and organizations is noteworthy. Theyinclude: Al Baraka, Arab Banking Corp., AAOIFI, BNM, SC (Securities Commission’sShari’ah Advisory Committee), Faisal Islamic Bank, Kuwait Finance House (KFH), OIC,Dubai Islamic Bank, SAC (Bank Negara Malaysia’s Shari’ah Advisory Council), ISRA,Shaykh Dr. Hussain Hamid Hassan and Shaykh Justice Muhammad Taqi Usmani. Moreover,a few modern fatawa is illustrative of issued raised herein above, as well as their importanceto IFI.1. At the 11th Session of the Council of the Islamic Fiqh Academy, Manama, Bahrain, inNovember 1998, the following resolution was issued [IFA 2000: 234-235]: “It is unlawful to sell a deferred debt to someone other than the debtor for a spot payment in the same or a different [currency] because it can lead to ribaa. 22
  23. 23. It is, likewise, unlawful to sell it for deferred payment of the same or a different [currency] because it comes under the rubric of the sale of a debt for a debt, which is prohibited in the Shari’ah. There is no difference in that [rule], whether the debt originates from a loan or from a deferred payment sale.”2. At its 2nd meeting on 21 August 1996, the Shariah Advisory Council (SAC)5 unanimouslyagreed to: “accept the principle of bai` dayn i.e. debt trading as one of the concepts for developing Islamic capital market instruments. This was based on the views of some of the Islamic jurists who allowed this concept subject to certain conditions. In the context of the capital market, these conditions are met when there is a transparent regulatory system which can safeguard the maslahah (interest) of the market participants.”3. And finally, an excerpt from AAOIFI’s Shari’ah Standard No. 21 dealing with trading insukuk and other company shares with underlying debt is illuminating: “If the assets of the companies consist of tangible assets, usufruct, cash and debts, then the rule for trading their shares differs according to the basic criterion employed, i.e., the goal of company and its core activities. If its purpose and activities focus on transactions of tangible assets, usufruct and rights, then trading of its shares is permissible, without need to consider the regulations of Sarf or disposal of debts, on the condition that the market value of the tangible assets, usufruct and rights should not comprise less than 30% of the total assets of the company, which include tangible assets, usufruct, rights, cash on hand and whatever is equivalent to it…But if the purpose and core activity of the company center upon transactions of gold or silver or currency (foreign exchange), consideration of the rules for Sarf is then compulsory when trading its shares. And if the purpose and core activity of the company focus on transactions involving debts…then consideration of the rules for debts is compulsory in the trading of its stocks...” Conclusion It can be gleamed from the sources of law noted herein above that the followingparameters exists at present with respect to the sale of debt:5 Of the Securities Commission Malaysia. 23
  24. 24. 1. Selling is generally permissible under the Shari’ah as long as it does not violate any clear prohibition of the Shari’ah.2. Debt is generally permissible under the Shari’ah as long as it does not violate any clear prohibition of the Shari’ah.3. Hawaalah is an acceptable method of transferring debt as long as it is carried-out in a prescribed manner.4. Muqaassah is an acceptable method of offsetting debt as long as it is carried-out in a prescribed manner.5. Selling debt otherwise is permissible according to the ahkam of bai’ al-dayn, to wit: (a) debt may be transferred back to the creditor for cash provided the prescribed ahkam are followed; (b) debt may be sold to a third party for cash provided the prescribed ahkam are followed; and (c) to a third party for a deferred price in the view of a minority of jurists under prescribed circumstances.6. Selling debt back to the debtor on a deferred basis is impermissible.7. Where is there are differences of opinion regarding the practices surrounding the sale, exchange or transfer of debt, or where there exists prohibitions against such practices, if there are critical public interests at stake, e.g. the well-being of a Muslim nation’s economy, maslahah and the concomitant rule of necessity may be considered and/or used on a more or less temporary basis to avoid harm, while Muslim jurists struggle with the Ahkam ash-Shari’ah in order to provide governments and markets alternative means of facilitating debt transfers, exchanges and sales. 24
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