Lecture 8

• There is almost a consensus among Shar¯ıáh scholars that the
credit price of a commodity can genuinely be more than its

cash price, provided one price is settled before separation of
the parties.
• According to many jurists, the difference between the two
prices is approved by the Nass (clear text of the Shar¯ıáh).
The Islamic Fiqh Academy of the OIC and Shar¯ıáh boards of all
Islamic banks approve the legality of this difference. This is
tantamount to the acceptance of time value of money in the
pricing of goods. What is prohibited is any addition to the price
once agreed because of any delay in its payment. This is because
the commodity, once sold (on credit), generates debt and
belongs to the purchaser on a permanent basis and the seller
has no right to re-price a commodity that he has sold and which
does not belong to him.
Jurists allow the difference between cash and credit prices of a
commodity, considering it a genuine market practice. Both time
and place have their impact on the price.
A commodity sold for 100 dollars in a posh area might be
available for 50 dollars in a middle class residential area.
Similarly, an object with a price of 100 dollars in the morning
might be available for 50 in the evening. This is all acceptable in
Shar¯ıáh if caused by genuine market forces. Similarly, it is quite
natural that the credit price of a commodity is more than its cash
price at a point in time, while in forward contracts like Salam, the
future delivery price is less than the spot price.
• The concept of time value of money in the context of
Shar¯ıáh is also established from the fact that Shar¯ıáh
prohibits mutual exchanges of gold, silver or monetary values
except when it is done simultaneously. This is because a
person can take benefit from use of a currency which he has
received while he has not given its counter value from which
the other party could take benefit.
• The contract of Salam also provides ample illustration of the
concept of time value of money through pricing of goods.
Salam is a forward contract which enables a commodity to be
bought for immediate payment of the price and futur delivery.
The basic element of this contract is that the price paid in
advance for future delivery of the goods is genuinely less than
the cash-n-carry price at the time the Salam contract is
executed
It further transpires from the Shar¯ıáh tenets that time valuation
is possible only in business and trade of goods and not in the
exchange of monetary values and loans or debts. Islamic
economics has the genuine provision of converting money into
assets on the basis of which one can measure its utility, but
loaning is considered a virtuous act from which one cannot take
any benefit. While it concedes the concept of time value of
money to the extent of pricing in credit sales, it does not uphold
generating rent to the capital as interest does in credits and
advances, leading to a rentier class in a society. Valuation of the
credit period for pricing the goods or their usufruct is different
from the conventional concepts of “opportunity cost” or the
“time value”. As such, “mark-up” in trade is permissible provided
the Shar¯ıáh rules relating to trade are adhered to, but interest is
prohibited due to being an increase over any loan or debt.
Money is the most strategic factor in the functioning of any
financial system. The status, value, role and functions of money
in Islamic finance are different from those in conventional
finance. In the conventional system, money is considered a
commodity that can be sold/bought and rented against profit or
rent that one party has to pay, irrespective of the use or role of
the lent money in the hands of the borrower. As this is not the
case in Islamic finance, the philosophy, principles and operation
of Islamic finance differ to a large extent from the principles and
operation of conventional finance
• Experts in Islamic economics concede the advantages of
money as a medium of exchange. The holy Prophet (pbuh)
himself favored the use of money in place of exchanging
goods with goods. The prohibition of Riba Al-Fadl in Islam is a
step towards the transition to a money economy and is also a
measure directed at making barter transactions rational and
free from the elements of injustice and exploitation.
• The present form of money has evolved over time from
various types of goods used as money and metallic
money to paper and electronic money. Money in the
present form, or the currency notes in vogue, are a kind
of Thaman (a unit of account to serve as the price of
anything), just like gold and silver used to be in the past.
In this form it is wanted only for exchange and payments
and not for itself, as it has no intrinsic value. Accordingly,
the present fiat or fiduciary money represents monetary
value for all purposes of making payments; the
currencies of all countries are unlimited legal tender and
creditors are obliged to accept them for recovery of
debt.
• Linking money to productive purposes brings into action labour and
other resources bestowed by Allah (SWT) to initiate a process from
which goods and services are produced and benefits passed on to
society. Therefore, paper money is subject to all the tenets of
Shar¯ıáh relating to Riba, debts, Zakat, etc.
• One cannot sell a 10 dollar bill for 11 dollars because the bill
represents pure money and has no intrinsic value. Notes of any
particular currency can be exchanged equal for equal. Currency
notes of different countries are considered monetary units of
different species and therefore can be exchanged without the
condition of equality but subject to the conditions of Bai„ al Sarf
(currency exchange), briefly discussed I foregoing paragraphs, i.e.
hand to hand.

Lecture 8

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• There is almost a consensus among Shar¯ı´ah scholars that the

credit price of a commodity can genuinely be more than its

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