4. CURRENCY EXCHANGE
Question 226 Transfers to and from Abroad
Based on the request of its clients, the bank issues them checks drawn against correspondent banks abroad. The bank also arranges for transfers by wire and by mail to all parts of the world; in the same way that it accepts such transfers in the interest of those with whom it deals locally, and it honors those transfers for them. In addition, the bank accepts brokerage fees for doing so, and it charges its clients for its actual expenses.
Fatwa
The Conference is of the opinion that the bank may continue its dealings in regard to the issuing of checks, and arranging for transfers to and from abroad, in accordance with the methods explained in the bank’s Business Report. This is because there is nothing in the Sharp ah to prohibit these dealings.
Question 227 Exchange for Repayment in Murabahah
Should we charge the price of exchange on the day goods are actually purchased (i.e., by the bank for its client) in a murabaha transaction? Or the price of exchange on the day the goods are sold to the client?
Fatwa
Murabahah dealings should be completed in the currency with which the goods constituting the Murabahah contract are purchased. When the price is repaid, it may be repaid in the same currency or in Dinars which the client buys in an exchange transaction at the time of repayment (generally made in installments).
Question 228 Forward Trading for Clients
Is it lawful for the Islamic Bank to arrange deals involving the forward trading of currencies for its clients?
Fatwa
It is not lawful for the Bank in its own capacity to become directly involved in this sort of transaction. It is likewise not lawful for it to act as an intermediary in deals of this nature as a service to its customers and for their accounts because this is prohibited by the Shari’ah.
Question 229 Selling Currency at Two Different Rates
Will it be lawful for the Finance House to sell foreign currency at two different rates? One rate for transfers and another for cash?
Fatwa
The Board questioned the exchange manager concerning certain of the practices current among banks involved in international exchange. Following a detailed discussion o f t h e subject, the Board decided there is no legal impediment from a Shari’ah perspective to carrying out such a sale, as long as there is no international law to prevent it, and on condition that the transfer take place on the spot.
Question 230 Delays in Exchange Occasioned by Holidays
What is the legal ruling in regard to the purchase of currency when the taking possession and the receipt of the countervalue take place on two separate days? For example, we purchase Saudi Riyals for US Dollars from a Saudi bank, and the Saudi bank pays the Riyals into our account on a Sunday. But we deliver our payment in dollars to the Saudi bank on Monday, owing to the closure of banks in the United States on Sundays?
Fatwa
Giving a check that is payable on demand and without postdating it, or ordering a payment without deferment, even over the telephone may be considered fulfilling the condition for possession. The incidental occurrence of a regulär holiday will have no bearing on the matter.
Question 231 Setting Exchange Rates for Transferred Deposits
If someone were to deposit an amount of foreign currency with a correspondent bank for one of our clients, but without informing either us or the client in advance, such that it becomes our responsibility to inform the client and then deliver the value to him/her in local currency, then on what basis should the exchange rate be set? (Especially when there was no prior intention on our part to buy and none on the client’s part to seil?)
If a client informs us that s/he expects an exchange to be made in his/her favor through one of our correspondent banks, such that a deposit in foreign currency will be made to our account with them on a certain date, whether known or unknown, then on what basis will the rate of exchange be calculated?
Fatwa
If the exchange is completed in a foreign currency for someone, and there are no exact Instructions regarding the exchange to a local currency of the amount received in the client’s name, the rate of exchange to be applied will be the price on the day the Finance House receives the transfer. Then, the client may either receive a check for the amount in the same currency, or the amount may be deposited in the client’s (foreign currency) account, or the amount may be deposited in the client’s current account in local currency. The exchange, in the latter case, will take place at the rate on the day the transfer arrives. In the case that Instructions exist regarding the disposition of amounts that maybe
received into the client’s account, and its exchange into local currency, the rate on the day that notice of the transfer is received will be the applicable rate of exchange, because the exchange actually takes place on that day.
Question 232 International Rates of Exchange
There are two rates for currency outside the country of its origin; a local (spot) rate and a market (forward) rate. Currency in the country of its origin is maintained in what is called a transfer account because the account holder keeps the funds in the same currency as the country of their origin and all transactions, whether deposits or withdrawals, take place with checks in that currency. The other way (called a hold account) is to maintain the same currency as cash outside the country of its origin.
In the latter case, the rate will be either greater or less than the international rate depending on the influence of the quantities offered on foreign markets. Thus, when there is a surplus of foreign cash currency in a particular market, its rate of exchange will be lower than its international price because the buyer will have to pay extra to transport the currency to its country of origin and deposit it in his/her account there. The opposite will also hold true (i.e., when there is a shortage, the rate will be higher). In case there is an increase in demand for the cash currency outside of its own country, the market will have to import a greater quantity of it, and further pay for its transport and insurance, all of which acts to drive the rate higher than the international rate. Moreover, currency in cash outside the country of its origin cannot be used by its holder to make payments owing to the expense of transporting, and so on. Thus, for the purpose of making payments internationally, transfer accounts are used. Ordinarily, the difference between the two rates, the local and the market rates, will not exceed a certain percentage, which is linked to the cost of importing or exporting the currency. If the difference should become greater, the matter of either importing or exporting the currency becomes more attractive to traders.
For the reasons above, banks and financial institutions deal in currencies on the basis of two rates; one rate for cash currency and another rate for the same currency in the form of transfers. This explains why all foreign currency accounts are dealt with in the same way as transfer accounts. When a client wants to deposit foreign currency in her/his account, the bank will purchase cash in that foreign currency in exchange for Dinars. Thereafter, the foreign currency (deposited by the client) will be sold in the form of a transfer and deposited in the client’s account. In other words, the bank will not borrow unless it is by means of transfer. What is the Sharpah position on this matter?
Fatwa
After hearing an explanation of every aspect of the matter, the Board feels confident in saying that there is nothing wrong with it from a Sharp ah perspective. It should, however, be stipulated that the client who opens a foreign currency account needs to understand that the account will be operated as a transfer account because, in principle, when an account is opened with foreign currency, all withdrawals and maintenance will take place in that foreign currency. Of course, if international regulations or laws require otherwise, then the Finance House may deal with such accounts internally in foreign currency. The client must, however, be informed of the regulations and constraints before the account is opened.
Question 233 Advance Agreement on a Rate
What is the Sharp ah ruling in regard to an agreement on the sale and purchase of foreign currency at a rate that is agreed upon in advance, such that the transacting takes place at a later date, and that the delivery and receipt of cash take place at the same time?
Fatwa
Such a transaction will be considered the same as a promise to seil. Then, if both parties go through with the deal in the way that it is described in the question, there will be no legal impediment to its implementation. This is because it is lawful to carry out the promise as described. On the other hand, if the promise is linked to anything that suggests a contract of sale, like a down payment, the deal will then become like the sale of debt for debt (a deferred payment for a deferred payment) which is absolutely forbidden. This is especially true in an exchange contract because its validity depends upon the taking possession of both countervalues at the time of transacting. In such a case, the stipulation of a deferment is considered by all the jurists to render the contract void.
Question 234 Exchanging Notes for Currency Other than the Original Issue
1. Will it be lawful to exchange notes having payments deferred for several years for foreign currency other than the one in which the original note was issued?
2. Will it be lawful for the issuer of a note to buy it back with payment in a currency other than the currency in which the note was originally issued? It should further be noted that the note has a maturity date, but that the issuer will disregard it when buying back the note.
Fatwa
1. It is not lawful to exchange notes with deferred payments for the currency in which they were issued originally or for any other currency. This is because if the exchange takes place in the same currency, the exchange will be like the sale of debt for debt that is deferred when it is essential that mutual exchange of equal countervalues take place in the sale of currency for a similar currency. The presence of a maturity date prevents mutual exchange because when the note is exchanged, the maturity date remains.
2. The issuer’s buying back the note and disregarding the maturity date is the same as his agreeing to exchange the currency of the note for another currency. In that case, it will be lawful for one of the counter values to be in excess of the other because the currencies are different. If mutual exchange is to take place lawfully, however, there must not be a maturity date. In this case, by buying back the note, the issuer has effectively cancelled that date because it is in his own interest to do so. In this case,. mutual exchange will take place when the agreed price is paid in the other currency. The currency of the original note will be considered to have been paid on account. This is what is termed exchange on account; and taking possession of the countervalue brought about by the debt is dropped. It is necessary to take possession of the advanced countervalue in the different currencies by way of exchange. This must not be used as a device for profit in return for dropping the maturity date.
Question 235 Mutual Promises to Buy or Sei!
What is your opinion in regard to a mutual promise for the sale of various currencies at the rate of exchange on the day of the agreement (the day of the mutual promise) on condition that delivery of both counter values will be delayed so that the exchange may take place hand to hand in the future? Will it make any difference if the mutual promise is treated as binding? Or if it is treated as non-binding?
Fatwa
Such a mutual promise, if it is hiding on both parties, is subject to the general prohibition against the sale of debt for debt and is therefore unlawful. If, however, the mutual promise is not binding on both parties, it is lawful.
Question 236 Replenishing Overdrawn Accounts
We hold several accounts at the bank for different currencies, like the Saudi Riyal, the American Dollar, and the Sterling Pound, etc. It is common for one or another of our accounts in these currencies to become overdrawn, while positive balances in the other accounts are retained.
Moreover, the bank does not charge us a fee for such overdrafts; nor does it pay us interest on the balances we maintain. When an account remains overdrawn for a long period of time, the bank will request us to make a payment to the account, and we comply.Is this acceptable?
Fatwa
If accounts in a certain currency become overdrawn while there are positive balances in other currency accounts, then if there is one creditor, the client may request the bank to replenish the overdrawn account with funds from other accounts by way of exchange for the price on that day. The client may also replenish his/her account in the same currency.
Question 237 Practices on the International Exchange Markets
What is the Shari’ah perspective on the exchange Operations the DMI engages in? These may be summarized as follows:
1. Exchange Operations (for sale and purchase that run parallel to one another, or swaps) of various currencies for the market price, when these (Operations) take place without delay, hand to hand.
2. Promises and commitments by agreement to enter into exchange Operations for a price specified at the time of the agreement, when delivery is delayed and no price or advance is paid out. Then, at the time specified for the delivery of each of the two currencies (the value date), the sale is completed hand to hand such that each party takes possession of the currency s/he is owed.
Fatwa
The opinion of the Board is that the exchange Operations undertaken by the DMI in the ways explained in the above two scenarios are in agreement with the rulings of the SharTah of Islam. There is nothing in these that deviates from Sharjah texts, on condition that the internal procedures issued by the Board are complied with.
1. In regard to the prices, the Executive Committee for the Fatwa and Shariah Supervisory Board, in its meeting on September 1, 1982, was of the opinion that these continue to remain promises and commitments to agree on exchange Operations for a specified price, while delivery is delayed, and no price or advance is paid out. At the agreed time the sale is concluded on the spot. There is nothing wrong with this in the SharP ah. The jurists have decided that a promise is binding; and that is why such commitments have always been carried out on that basis. Thereafter, the sale takes place in accordance with the condition laid down by the Sharp ah (that such sales take place) hand to hand. This method accords with the nature of (dealing in) various currencies as (commodity) prices.
2. In its opinion, the Executive Committee added that the fear of the jurists concerning delays in exchange transactions between parties carrying an element of doubt concerning riba is in fact unfounded in regard to Islamic institutions in the international exchange markets. This is because these markets regularly announce definitive prices for currencies around the world, and also because the markets operate on the basis of rules that are honored by the parties who trade there. All of these factors work to dispel the doubts related to the transactions we have discussed above.
Question 238 A Promise to Purchase Different Currencies
What is the (Shari’ah) opinion in regard to a mutual promise to purchase different currencies at the rates current on the day of the promise? It should further be understood that the delivery of the two counter values will be delayed to allow for the exchange, hand to hand, in the future. What is the ruling when such a promise is considered to be binding? And what is the ruling when such a promise is not considered binding?
Fatwa
Such a promise, if considered binding on both parties, will fall under the general Prohibition against the sale of debt for debt and will therefore be unlawful. If, however, the promise is considered not to be binding on both parties, then it will be lawful.
Question 239 Options for the Sale of Currencies
Is it lawful to purchase foreign currencies on the basis of what is called an option contract in which a sale is concluded in the following manner?
The buyer agrees with a bank to a right to a certain currency, in a certain amount, for a certain price, during a certain period of time. Then, in return for the right to exercise the option given by the bank to the buyer (the one profiting), the one profiting will agree to a fee or something extra for the seller (the bank) which will be paid at the time of entering into the contract for the right to an option to purchase currency. During the agreed period, the purchaser (the one profiting) may pay the agreed price and purchase the currency, regardless of the market price current at the actual time of purchase.
The purchaser may also opt not to purchase the currency. This is the nature of this contract. So the only requirement, should the purchaser decide not to (exercise the option to) purchase the currency is the payment of the fee at the beginning of the option contract in return for the opportunity to have the option, a fee which may not be returned regardless of whether or not a sale takes place.
Fatwa
It is not lawful to seil currencies on option because such a sale is incomplete. It is lawful, however, to stipulate an option in other sorts of sales, of shares or goods, as long as the option complies with the conditions set for option sales in Fatwa no. 8/1 from the Finance House’s Book of Legal Rulings.
Question 240 Mutual Promises in Exchange
What is the ruling about mutual promises in the exchange of currencies?
Fatwa
It is necessary to emphasize the decisions taken by the Second Conference on Islamic Banking held in Kuwait in March 1983 to the effect that a mutual promise in the sale of currencies involving a delay in payment of the price is lawful as long as the mutual promise is not considered binding. This was the majority opinion.
If the mutual promise is considered binding, however, this transaction will not be lawful from a SharPah perspective.
Question 241 Agreeing to Sell Currency for a Predetermined Rate
As a facility for the pilgrims to Makkah, the Ministry of Awqaf seeks an agreement with the Islamic Bank under which the Bank would seil it Saudi Riyals at predetermined rate,today’s for example. This (rate) would remain in effect for a certain period of time (sixty days from the agreement, for example), and during this period the Ministry would deliver to the Bank the price of Saudi Riyals in Jordanian Dinars. In return, the Bank would deliver, on the same day, checks for Saudi Riyals drawn on the basis of the previously determined rate for this purpose (which may be higher or lower than the exchange rate for the Riyal on any particular day). Will it be lawful (for the Islamic Bank) to go through with this transaction?
Fatwa
This agreement, to exchange currencies of different countries for a rate that is fixed at the time of the agreement, with the understanding that exchange will take place between the Bank and Ministry at the same time and on the basis of the previously agreed upon rate, regardless of the current rate at the time, is included in what was written in Nayl al Awtar (vol. 5, pp. 254-255). There it mentions that the opinion of the Hanafi and the ShafiT schools is that it is lawful to exchange at the current rate, or at a higher or a lower rate. This legal perspective, though it contradicts the literal meaning of the hadith by Ibn TJmar which allows the current rate only, appears to be based on the two Imams preference for the general meaning of the hadith (by ‘ Ubadah) in which the Prophet of Allah, upon him be peace and blessings everlasting, says: “If these categories differ, then seil however you like as long as the sale takes place hand to hand.” I therefore agree with the Bank’s going through with the transaction in the manner explained, based on the opinions of Imams Abu Hanifah and al ShafiT. And Allah Most Glorified and Most High knows best.
Question 242 Bearing Costs of Exchange
If a client seeks to exchange the value of a check in cash for someone, then will the client or the one to whom he writes the check bear the cost of the exchange?
Fatwa
The one who bears the cost of exchange in an exchange transaction involving a check for foreign currency in cash is the one with whom the mutual exchange takes place. In this case, this is the one for whom the check was written because s/he is the one who is doing the exchange. Therefore, anything resulting from the transaction will be his/her responsibility.
Question 243 Foreign Currency Investment Accounts
We request Your Eminences to explain the SharP ah position in regard to certain clients who deposit amounts in foreign currency in joint investment accounts with the expectation that these deposits will remain in foreign currency with the bank.
By way of clarification: Certain clients, particularly those from certain neighboring Arab countries, want to deposit sums in joint investment accounts, but they further desire to so in foreign currency (like the U.S. Dollar or the Pound Sterling), and thus share in the profits while preserving access to their foreign currency at the Bank. When withdrawals are made from these accounts, the Bank pays the clients in the same currency, and at the same rate, as when they made their deposits.
When the Bank calculates the profits for each account, it does so on the basis o f t h e Jordanian Dinar, in accordance with either the purchase price or the average price [of the currency] on the date of deposit as posted by the Central Bank. At the same time, the deposits remain on the Bank’s books in foreign currency.
Since these depositors have granted the Bank the right to invest their money, the Bank invests their deposits in foreign investments, with their foreign currency, or uses it to cover the Bank’s letters of credit. We will therefore appreciate having the Sharp ah opinion on this matter.
Fatwa
With regard to the clarification requested on the matter mentioned in your question, which may be summarized as follows: Certain clients seek to make deposits in joint investment accounts so as to share in the profits which result, but they also seek to make these deposits in foreign currency and to be able to retrieve these deposits in the same currencies when they make withdrawals. Moreover, they grant the Bank the right to invest these deposits of foreign currency in projects abroad, or for the purpose of covering letters of credit, etc.
On closer inspection, it appears that these clients share certain amounts of hard currency with the Islamic Bank and grant it the right to invest it for them, even in projects abroad; and that they may seek the return of these amounts in the same currencies they advanced for deposit. In order to account for the profits earned by these deposits in its joint investment accounts, the Bank calculates on the basis of either the purchase price or the average price [of the currency] on the date of deposit as posted by the Central Bank. The deposits, however, remain on the Bank’s books as foreign currency.
It furthermore seems apparent that the operation described is untainted by exploitation, nepotism, and deception; nor is there anything to prohibit it from the Qur’an or the Sunnah. Rather, it stands on two pillars:
1. Joint investment
2. The return of the same amounts received by the Bank
Given these circumstances, it is lawful for the Bank to calculate the earnings that have accrued to the amounts deposited on the basis of the Jordanian Dinar at the purchase or average price on the day the deposits were made. The Bank should also agree with its depositors on the method to be used for such calculations. At the time of withdrawal, the depositor has the right to seek the return of the same amount deposited in hard currency; and the rise or decrease in the rates will not affect this in any way. And Allah knows best.
Question 244 Actual and Abstract Receipt
May the customary method of ledger entries used by banks in regard to debits and credits be considered (i.e., will it satisfy the Shari’ah requirement for) mutual receipt in a currency exchange deal? And with regard to the sale of commodities, will the above be considered mutual receipt?
Fatwa
Yes, the customary methods used by banks in the exchange of currencies may be considered lawful receipt.
Commodities, however, are another matter. A number of texts have prohibited the sale of what a person does not have in his/her immediate possession, though this is allowed as a concession in the salam (future delivery) sale. Thus, receipt other than actual taking possession is not allowed in regard to commodities; particularly since these may not be put to use before they have come to be in one’s possession or safekeeping, as in the case of foodstuffs and the like. Clearly, there is no way to permit the use of such items before they have come into one’s possession.
Question 245 Purchasing Currency for Cash
Is there anything to legally prevent one from purchasing currencies for cash, and at prices below the current market rates, if the purchase is made from one of the banks with which we have extensive dealings?
Fatwa
If a definite price for these currencies has not been set by a responsible authority, legal consideration will be given to whatever the two parties agree upon. The cash, however, must actually change hands or, otherwise, (the customary method of) ledger entries (used by banks) in the exchange of currencies may be considered lawful if both parties do so immediately.
Question 246 Buying Foreign Currency from a Local Client
When a client approaches the Islamic Bank for a murabahah deal, the Bank will purchase goods from a dealer abroad and, after taking possession of the same, will seil them to the client. Oftentimes the client will ask the Islamic Bank to buy foreign currency from him/her at the time the Bank is to make payment to the dealer for the goods. If the rate asked by the client for the foreign currency seems appropriate when compared to the current market rate, will it be lawful for the Islamic Bank to engage in such a transaction?
Fatwa
As long as the contract for the sale of goods remains separate from the contract for the purchase of currency from the client, such that the two contracts are completely independent of one another, there will be no legal impediment to such an undertaking.
Question 247 A Promise to Purchase Currency
What is the legal view of a promise to purchase a designated currency in a designated amount for a designated price during a designated period of time, when the seller agrees to hand over the currency on demand at any time during the designated period on the understanding that the purchaser will pay a certain amount in advance, known as the “right to buy,” which he/she will lose if the deal (to purchase the currency) is not concluded.
Fatwa
Such a transaction is not lawful because it is no more than a promise to purchase currency. The only sale of currency allowed by the Sharp ah is a straightforward sale that is accompanied by direct receipt in money barter or the exchange of price for price.
Question 248 Purchasing Currency on Credit
To what extent will it be lawful to purchase foreign currencies from mercantile banks by deducting the price of the currencies from the (credit) accounts we hold with them?
To what extent will it be lawful for the Islamic Bank to deal in a preferential manner in regard to the rates of currencies with mercantile banks, considering that exchange transactions are completed either by means of cash and through immediate receipt which may also take place through the ledger entries used by banks in regard to debits and credits.
Fatwa
Such a transaction will be lawful because the purchase of currencies from such banks is akin to paying something they owe as a debt, either in füll or in part, by means of what is known as muqassah, or the mutual cancellation of loans.
With regard to the second question, the transaction described will be correct as long as possession is taken in the setting in which the deal is transacted (such that neither of the two parties leaves until actual or abstract receipt is accomplished). Preferential treatment between banks is a matter of good practice and is praiseworthy in the view of the Shari’ah. This should not lead, however, to (the relaxation of Standards through) exceptions when loans are involved between the Islamic Bank and other banks. And Allah knows best.
Question 249 Commissions for Cashing Checks
One of our clients brought us a check for American dollars from one of the Islamic banks, and (the check was) drawn on the dollar account of that bank with us. Since the actual balance of that bank is in our account with our correspondent bank in New York, we have two options:
1. We buy the check from the client, and pay its face value to him/her in Kuwaiti Dinars, in cash, at the current market rate of exchange, or
2. We deduct a certain percentage from the value of the check as a commission, and we pay him/her in American dollars.
Is this lawful from a ShatTah perspective, or not?
Fatwa
It will be lawful to cash the check in Kuwaiti Dinars at the market rate on the day of the transaction. The taking of a certain percentage of the face value of the check as a commission, however, is unlawful.
In case the client desires the value of the check in dollars, s/he will first have to cash the check in Kuwaiti Dinars. Thereafter, s/he may purchase dollars from any source.
Question 250 Deferring Receipt of Currency
A client imports goods under credit terms facilitated by the exporter such that, instead of paying immediately, payment will be made one hundred and eighty days from the date the goods are shipped. The importer will first open a letter of credit for the import of the goods, and the terms of the letter will specify that payment will be deferred for one hundred and eighty days from the date the goods are shipped. The importer will purchase the currency required (for payment to the foreign exporter) from the Islamic Bank, and this amount will remain with the Bank until the date on which payment falls due. At that time, the Bank will pay the amount on its client’s behalf. Since the Bank retains (use of) the money until the due date, it is able to offer its client a price (for that currency) which is better than the going rate. Is this lawful?
Fatwa
In a sarf transaction, it is unlawful to defer the receipt of the currency exchanged, regardless of whether or not there is a condition to that effect. It will, however, be lawful after a spot exchange, to deposit the currency with the bank until it is requested or the time comes to make the payment (to the exporter).
Question 251 Commissions on Currency Exchanges
It is customary practice in commercial banks, when issuing regulär letters of credit for foreign currency on Instructions from their clients, that they will deduct the amount specified from the client’s current account in the same currency. For this Service, the banks will collect a compensatory commission in lieu of their profiting from the exchange rate differential, since banks usually charge commissions for the sale of foreign currency. In the case described here, however, the banks will be deprived of their customary profits. Will it be lawful, therefore, for the Islamic Bank to pay such a commission?
Fatwa
No, this is not lawful because it amounts to the fraudulent consumption of the wealth of others.
Question 252 Commissions on Transfers to Foreign Banks
A client requests the transfer of a sum from his/her current account with the Islamic Bank to a foreign entity. The bank then takes a commission of 2.5% on the transfer, in addition to the expenses involved in the wire transfer requested by the client. Is it lawful for the Islamic Bank to deduct this percentage from the value of the transfer?
Fatwa
Yes, it will be lawful for the Islamic Bank to take a certain percentage as a commission for the service it has performed for its client.
Question 253 Transferring Deposits
Will the legal maxim that says: “All loans which bring on profit are riba” be applicable to the exchange of deposits? The reason the question arises is that if the two parties fail to agree to the loan exchange, it will not take place at the initiative of only one party. Please give a definitive answer to this matter.
Fatwa
The legal maxim mentioned in the question will not apply to this Situation because no profit is realized from a loan per se. Rather, the same amount that is borrowed is returned without any increase in either cash or kind. Generally speaking, benefits accrue (if they are to accrue at all) from your transacting with those who agree to transact with you. This is the nature of trade.
Question 254 Profits and Losses to Overdrawn Accounts
Savings accounts in the Islamic Bank are actually investment accounts. Thus, when the Investments yield profits, the account holders will share in the profits in proportion to the amounts credited to their accounts and the periods of time those amounts have remained in their accounts. So will it be lawful for the Bank to overdraw these accounts by allowing depositors to withdraw amounts greater than their current balances? Then, ifa client does overdraw an account and, Allah forbid, losses take place, to what extent will these overdrawn accounts be affected by those losses?
Fatwa
If savings accounts become overdrawn, such that no balance remains in them, then whatever the bank has paid out to the client will be considered an interest-free loan, qard hasan, and will not be a part of either profit or loss.
Question 255
We have developed a method by which we give the bank ten million, for example, without their seeking a fee from us. Then we seil these dollars in the market and buy Sterling Pounds if we believe that the price of Sterling will rise. Then, when the price of Sterling rises, we sell it in return for dollars. Then we return the dollars to the bank and they return Saudi Riyals to us. Is this practice acceptable?
Fatwa
There is no impediment, from a Shari’ah perspective, to borrowing an amount from the bank at no interest for the purpose in trading in currencies, if the borrower is free to transact as s/he sees fit, and then either profits or loses. However, if the deal is conducted as a currency exchange, such that the Dollar amount is placed against the Riyals without either party ever taking delivery of the same, then this will not be lawful because it amounts to an exchange with a delay. The same will be true if the amount is loaned without the borrower being able to take possession of the borrowed amount.
By Yusuf Talal DeLorenzo.
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