Islamic Sale Transactions
There are 6 main types of transactions
Sale of gold, silver or currency
GOLD AND SILVER
It is not permissible to sell gold for money unless the gold and the money are handed over in the same sitting. [called taqaabud]
Selling gold, silver and currency, because the permissibility of trading in these things is subject to the condition that the exchange take place on the spot, and it is not permissible to sell them for deferred payment or instalments. It is not permissible to buy gold or silver by paying for it before receiving it, or after receiving it. Rather the exchange must take place in the same sitting.
CURRENCIES
Dealing in currencies is permissible so long as the exchange takes place in the same sitting as the contract is made.
It is permissible to sell different currencies- Euros for Dollars so long as the exchange takes place in the same sitting as the contract is made.
But when the deal is concerning the same type of currency, such as selling one dollar for two dollars, that is not permissible because it is a type of riba. In that case they should be of equal amounts and the exchange must take place in the same sitting as the contract if the exchange is concerning one type of currency.
Exchange of like for like for 6 types of commodities- gold, silver, dates, wheat, barley and salt
There are certain restrictions on selling like-for-like six type of commodities - gold, silver, dates, wheat, barley and salt,
The restriction is that when exchanging them, they must be “like for like, same for same, hand to hand.”
You cannot, for example, exchange 2 Kg of inferior dates with 1 Kg of superior dates.
References
Muslim (1587) from ‘Ubadah ibn as-Samit (may Allah be pleased with him), who said: The Messenger of Allah (blessings and peace of Allah be upon him) said: “Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, salt for salt, like for like, same for same, hand to hand. But if these commodities differ, then sell as you like, as long as it is hand to hand.”
Al-Bukhari (2302) narrated from Abu Sa‘id al-Khudri and Abu Hurayrah (may Allah be pleased with them both) that the Messenger of Allah (blessings and peace of Allah be upon him) employed a man in charge of Khaybar. He brought them some janib dates. [The Prophet (blessings and peace of Allah be upon him)] said: “Are all the dates of Khaybar like this?” He said: We buy one sa‘ of these for two sa‘s of the others [i.e., inferior dates], or two sa‘s of these for three sa‘s of the others. He said: “Do not do that. Sell the inferior dates for dirhams, then buy the janib dates with the dirhams.” And he said something similar about dates sold by weight.
When exchanging gold for gold, two conditions must be met:
The exchange should take place in the same meeting in which the agreement was reached, i.e., hand to hand;
(AND)
They should be equal in weight,
It was narrated that Muslim bin Yasar and 'Abdullah bin 'Atik said:
"Ubadah bin As-Samit and Muawiyah met at a stopping place on the road. 'Ubadah told them: 'The Messenger of Allah forbade selling gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates"'- one of them said: 'salt for salt,"' but the other did not say it-"unless it was like for like, hand to hand. And he commanded us to sell gold for silver and silver for gold, and wheat for barley and barley for wheat, and to hand, however we wanted."' And one of them said: "Whoever gives more or ask for more has engaged in Riba."'
Sunan an-Nasa'i 4560
The correct way to do an exchange transaction is to sell the gold for cash, then buy whatever you want (of gold and other things) with the cash.
Spot sale
Goods are ready; will be delivered and paid for immediately
This is the common type of sale and no additional rules apply to this case.
Goods paid for in full in advance, to be delivered later
This is called Salaam in Arabic
ADVANCE PAYMENT
Narrated Ibn `Abbas:
The Prophet (peace be upon him) came to Medina and the people used to pay in advance the price of dates to be delivered within two or three years. He said (to them), "Whoever pays in advance the price of a thing to be delivered later should pay it for a specified measure at specified weight for a specified period."
Sahih al-Bukhari 2240
The seller commits to delivering specific goods to the buyer at a later date in exchange for a full upfront payment in cash. For example, small farmers who need funds to grow crops and feed their family till the time of the harvest. This is also applicable for import export businesses today.
CONDITIONS FOR SUCH A SALE
This is an exception to the forward sales prohibition in Islam.
Full Payment
The buyer must pay the entire price upfront at the time of the contract. Partial payment is NOT allowed.
Specified Goods
The goods being sold must be well-defined and their quality and quantity clearly specified. All possible details must be mentioned in extensive detail. If quality or quantity cannot be specified (like in the case of precious stones) or there is any ambiguity, then this type of sale is not allowed
Delivery should be certain
Commodity cannot be subjected to uncertain conditions such as “all wheat of a particular land” or “all dates of a tree”, since the field or tree can be destroyed due to natural causes
Delivery Date and Place
The exact date and location of delivery must be mutually agreed and mentioned in the contract.
No Forward Sales
This type of sale can't be used for goods that according to Islam need to be delivered immediately on the spot (e.g., gold for silver).
Goods that require manufacturing or construction, will be delivered later, with deferred payment
This is called Istisna in Arabic
This is a type of sale transaction where commodity is transacted before it comes into existence, for example a house to be constructed. It is a contract of sale of specified items to be manufactured or constructed, with an obligation on the part of the seller to deliver them to the buyer upon completion.
CONDITIONS FOR SUCH A SALE
Only for goods to be manufactured
This type of sale is only for goods that need manufacturing. It is not for goods that are ready.
Agreed Price
The price must be fixed and agreed by both parties.
Late Delivery Discount
There is a difference of opinion among scholars whether late delivery by the supplier can impact the price. Some scholars allow that the price be tied up with delivery time, and if there are delivery delays then an agreed price will be reduced by a specific amount per day.
No upfront payment
There is NO requirement for upfront payment in this
Specified Goods
The goods being sold must be well-defined and their quality and quantity clearly specified. All possible details must be mentioned in extensive detail. If quality or quantity cannot be specified (like in the case of precious stones) or there is any ambiguity, then this type of sale is not allowed
Cancellation
Before manufacturing starts, either party can cancel the contract
Once manufacturing starts, unilateral cancellation is not allowed
Delivery time
It is NOT mandatory to fix a delivery time, however if both parties agree it can be added to the contract.
Deferred payment conditions are applicable. Read More