Documentary Credit - Appendix B (The Shariah Basis Of The Standard)

Transcription

1. Shari ’ah Standard No. (14): Documentary Credit Appendix (B) The Shari’ah Basis for the Standard Permissibility of Documentary Credit The permissibility of documentary credit is based on the principle that it relies upon contracts that are valid according to the Shari’ah, such as Kafalah (personal guarantee), Wakalah (agency contract) and Qard (loan). Shari’ah Categorization of Documentary Credit ■ The basis for the permissibility of irrevocable documentary credit is a combination of a contract of guarantee and agency. To these two the Qard (loan) transaction is to be added. It derives permissibility from the contract of mortgage (Rahn) as well, because it secures payment. The contract of guarantee creates a liability for payment, while agency determines the performance of acts relating to operations such as communication of the credit notification and initiation of operations pertaining to follow-up and examination of document. The loan element comes into operation when the institution pays on behalf of the client in case of documentary credit that is totally or partially uncovered.(2) ■ The basis for the permissibility of a revocable documentary credit is that it is a form of agency contract that is permitted by the Shari’ah. When a third party’s right is attached to it, it becomes binding, and this occurs when it leads to acceptance or payment. A revocable documentary credit cannot be classified under the contract of guarantee for two reasons; namely (I) it conflicts with the requirements of guarantee; and (II) an option is not permissible in guarantee contracts.(3) ■ The basis for the permissibility of the undertaking of the confirming bank and other similar undertakings of the banks that participate in (2) Resolution No. (419) of the Shari’ah Board of the Al Rajhi Banking Corporation and Investment and Answer No. (71) of the Shari’ah advisor of Dallah Al Baraka. (3) Ibn Qudamah, “Al-Sharh Al-Kabir”, Al-Kabir”, [3: 59-60], 1951 A.D. 410
2. Shari ’ah Standard No. (14): Documentary Credit issuance or confirmation of the credit is that it is an act of back up guarantee, which is permissible in the Shari’ah.(4) ■ The basis of permissibility of guarantee in irrevocable credit being qualified from the perspective of execution with the condition that documents presented conform to the conditions stipulated, is the ruling of the jurists that Kafalah (guarantee) accepts qualification through a stipulated condition.(5) ■ The basis for the ruling that documentary credit terminates with implementation or expiry is that the guarantee for documentary credit is limited in time by a period, and this is the period of validity of the credit. It is permitted to place a time frame on guarantee.(6) ■ The basis for the permissibility of the contract relied upon for documentary credit, as well as its conditions, is that it is a sale for which security is provided through guarantee, and this is compatible with the objectives of the contract. Contract That Precedes the Opening of Credit ■ The basis for the permissibility of making opening of documentary credit a condition in the sale contract preceding documentary credit is that such a condition is similar to a stipulation to provide a specific guarantor for payment, which is a valid condition acknowledged as an interest for the contract.(7) ■ The basis for the permissibility of undertaking international sale contracts and their security through documentary credit is that upon examination, the international sale contracts that are secured through documentary credit pose a difficulty: Do they involve delay of the two counter-values that is prohibited by the Shari’ah? (4) Ibid., [13: 25-26]; Ala’ Al-Din Al-Samarqandi, “Tuhfat Al-Fuqaha’” Al-Fuqaha’”,, [3: 407]. (5) Ibn Abidin, “Radd Al-Muhtar ’Ala Al-Durr Al-Mukhtar”, Al-Mukhtar”, [4: 265], Beirut: Dar Ihya` Al-Turath Al-’Arabi, n.d. (6) Ibid. (P. 265). Ibn Qudamah, “Al-Sharh Al-Kabir” Al-Kabir”,, [13: 25-26]; Al-Samarqandi, “Tuhfat Al-Fuqaha’”,, [3: 402, 404 and 405]; Muhammad Al-Hajjar, “Fath Al-’Allam Bi-Sharh Al-Fuqaha’” Murshid Al-Anam Fi Al-Fiqh ’Ala Madhhab Al-Sadah Al-Shafi’iyyah” Al-Shafi’iyyah”,, [5: 43], Beirut: Dar Ibn Hazm, 1418 A.H. (7) See: Wizarat Al-Awqaf Al-Kuwaytiyyah, “Al-Mawsu’ah Al-Fiqhiyyah”, letter “Ba”, “Bay’”, “Bay’ Wa Shart”, Shart”, Para (28); Al-Samarqandi, “Tuhfat Al-Fuqaha`” Al-Fuqaha`”,, [2: 70]. Mustafa Ahmad Al-Zarqa, “Al-Madkhal Al-Fiqhi Al-’Amm”, Al-’Amm”, 1986, (pp. 477-478); Muhammad Al-Hajjar, “Fath Al-’Allam”, Al-’Allam”, [5: 19]. 411
3. Shari ’ah Standard No. (14): Documentary Credit The members of the Board differed on this into those who prohibit them due to the cause indicated, and those who permit them -being in a majority with those permitting them disagreeing on the following points: a) That these contracts -prior to the ascertainment of the goods- do not involve delay in the two counter-values rather they amount to bilateral promises, which are agreements to sell and do not amount to sale itself. b) That they merely amount to extension of the session of the contract (Majlis Majlis al-’Aqd), al-’Aqd), with respect to the agreement, up to the time of ascertainment of the goods. c) That they do not amount to a delay in the two counter-values, but they are permitted on the basis of general need. d) That they are, ab initio, initio, an exchange of a debt for a debt and this is permitted under the Shari’ah. e) That the contract preceding the opening of documentary credit amounts to a sale contingent upon the opening of credit. f) That these contracts do not involve delay in counter-values, because that is attained through a stipulation for delay, while there is no stipulation of delay in this case. Commissions and Expenses in Documentary Credit ■ The basis for the impermissibility of receiving compensation for guarantee for the aspect related to documentary credit is that a guarantee is preparatory to extending a loan, and this is not to be compensated. The four Fiqh schools are unanimous on the impermissibility of taking compensation for guarantee. This rule is endorsed by a resolution of the International Islamic Fiqh Academy,(8) a ruling of the Shari’ah Supervisory Board of the Faysal Islamic Bank of Sudan,(9) the Shari’ah Board of Al Rajhi Banking Corporation for Investment(10) and a resolution of the Shari’ah Fatwa and Supervisory Board of the Kuwait Finance House. (8) International Islamic Fiqh Academy Resolution No. 12 (12/2). (9) Fatwa No. (14) of the Shari’ah Supervisory Board of the Faisal Islamic Bank, Sudan. (10) Resolution No. (297) of the Fatwas of the Shari’ah Supervisory Board of Kuwait Finance House. 412
4. Shari ’ah Standard No. (14): Documentary Credit ■ The basis for the permissibility of receiving compensation for an agency-related service in documentary credit, whether in a lump sum or as a percentage of a known amount, is that the amount is in lieu of services rendered by the institution, in its capacity as an agent of the client. The majority of the Fuqaha upheld the permissibility of charging wages for agency.(11) The Shari’ah Supervisory Board of Al Rajhi Banking Corporation for Investment has passed a resolution permitting receipt of payment including the services involved in documentary credit without referring to the aspect of guarantee.(12) ■ The basis for the impermissibility of charging commissions in consideration for providing long or short term loans, discounting and trading (payment of the value) in documents and deferred payment bills of exchange or for providing facility, are the texts of the Qur`an and the Sunnah laying down the prohibition of Riba.(13) Guarantees in Documentary Credit ■ The basis for the permissibility of seeking guarantees explained in this Standard (item 3/4) is that collateral (Rahn) may be money, debt or tangible asset insofar as they might be lawfully owned or created according to the Shari’ah and because the debt to be secured may be a current or future obligation.(14) (11) Ala` Al-Din Al-Mardawi, “Al-Insaf “Al-Insaf”,”, [13: 577]. (12) Resolution No. (419) of the Shari’ah Supervisory Board of Al Rajhi Banking Corporation for Investment. (13) In its Resolution No. (372), the Shari’ah Supervisory Board of Al Rajhi Banking Corporation for Investment stipulated: “It is prohibited in documentary credit to collect from the client any interest at any stage of the credit” (for discounting and trading in commercial papers, see item 2/8 where the resolution provides the Shari’ah basis for this ruling). As regards commission for providing the facility, the facility is preparatory to extending a loan, and hence if commission is prohibited for giving the loan itself it would be obviously correct to prohibit commission for a mere readiness to do so. This conclusion has been adopted in the Al Baraka 8th Forum in its Fatwa No. (13) and the response of the Shari’ah advisor to Dallah Albaraka Group No. (1). (14) See: Al-Samarqadi, “Tuhfat Al-Fuqaha`” Al-Fuqaha`”,, [3: 53-54]; Al-Mardawi, “Al-Insaf ”, ”, [13: 359]; Al-Hajjar, “Fath Al-’Allam”, Al-’Allam”, [5: 44]; Ibn Qudamah, “Al-Mughni” “Al-Mughni”,, [6: 444-445]; Abu Abdullah Muhammad Ibn Muhammad, “Mawahib Al-Jalil Sharh Mukhtasar Khalil”,, 2nd edition., [5: 5], Beirut: Dar Al-Fikr, 1978 A.D.; See also Islamic Fiqh Khalil” Academy Resolution No. (86) 3/9, Jeddah; Fatwa No. (5) of Al Baraka’s 5th Forum and Resolutions No. (19 and 283) of Al Rajhi Banking Corporation for Investment. 413
5. Shari ’ah Standard No. (14): Documentary Credit ■ The basis for not allowing the Institution to sell its share of partnership, in goods purchased by the client, for a delayed payment to the client is that this amounts to a sale-buy back arrangement (Bay’ (Bay’ al-’Inah), al-’Inah), which is prohibited by the Shari’ah. ■ The basis for not allowing negotiability of documents payable on sight including bills of exchange for an amount lesser than their nominal value is that this adopts the form of the sale of debt, which is prohibited. 414