Section 6: Commercial Papers:
Firstly: Definition of Commercial Papers and their types
Commercial Papers are instruments that guarantee an obligation to pay an amount of money that is usually due for fulfillment after a short time. [2133] Refer to: ((Journal of the Islamic Jurisprudence Assembly)) (2/614).
The types of Commercial Papers are:
1. Cheque: It is an instrument drawn up according to a specific form that includes an order from one person (the drawer) to another person (the drawee) to pay a specific amount to a third person (the beneficiary) upon sight. [2134] Refer to: ((Sharia Standards)) by the Accounting and Auditing organization (P: 444), ((Dictionary of Financial and Accounting Sciences)) by Mahmoud Al Atwan (P: 560).
2. Promissory Note: This is an instrument written in accordance with conditions determined by law. It includes the pledge of a specific person (the maker) to pay a specific amount of money from a specific or determinable date to the order or permission of another person (the beneficiary) [2135] Refer to: ((Sharia Standards)) by the Accounting and Auditing organization (P: 443), ((Dictionary of Financial and Accounting Sciences)) by Mahmoud Al Atwan (P: 498), ((Dictionary of Economic and Islamic Terms)) by Ali Jumah (P: 327).
3. Bill of exchange: A written order in a specific way from one person (the drawer) to another person (the drawee) - to pay a specific amount of money on a specific or determinable date, to the order of a specific person (the beneficiary) (or to the bearer without a specification, as in some Laws). The persons in this withdrawal process may be natural persons, or legal persons such as banks. [2136] Refer to: ((Sharia Standards)) by the Accounting and Auditing organization (P: 443), ((Dictionary of Financial and Economic Terms in the Language of Jurists)) by Nazih Hammad (P: 385), ((Dictionary of Economic and Islamic Terms)) by Ali Jumah (P: 438).
Secondly: Ruling on dealing with Commercial Papers
It is permissible to deal in Commercial Papers of all three types (bill of exchange, promissory note, and check), provided that it does not result in a violation of the Sharia such as usury or unlawful postponement. This was stipulated in a decision by the Islamic Fiqh Academy of the Organization of the Islamic Conference [2137] According to the decision of the Islamic Fiqh Assembly, commercial papers (checks - bearer bonds - withdrawal bonds) are types of legitimate documentation of debt in writing. ((Journal of the Islamic Jurisprudence Assembly)) (2/217). and the Accounting and Auditing Authority for Islamic Financial Institutions. [2138] Refer to: ((Sharia Standards)) (P: 444).
This is due to the following:
Firstly: Because it means a transfer or a loan, and they are permissible by consensus. [2139] Refer to: ((Sharia Standards)) (P: 452-453).
Secondly: It is considered a document of a debt, and Allah Almighty has commanded that debts be documented, "O you who have believed, when you contract a debt for a specified time, write it down." (Al-Baqarah: 282) [2140] Refer to: ((Sharia Standards)) (P: 452-453).
Thirdly: Settling/Discounting [2141] People are accustomed to calling it Discounting, which is linguistically incorrect. Commercial Papers
1- Meaning of Discounting Commercial Papers
Discounting Commercial Papers: It is a process whereby the holder of a commercial paper transfers its ownership to a third party before the maturity date, in exchange for the institution accelerating its value to him, less a certain amount. [2142] Refer to: ((Research of the Senior Scholars Authority)) (5/380), ((Journal of the Islamic Jurisprudence Assembly)) issue number two (2/791), ((Sharia Standards)) (P: 461).
2- Ruling on Discounting Commercial Papers
The Discounting of Commercial Papers (cheques, promissory notes, bills of exchange) is not permissible. [2143] The discussion of the issue is whether the discount is from someone other than the debtor. As for if it is from the debtor himself, it is the famous issue: "Write off and expedite." Some scholars have permitted this. Refer to this book, Issue: Waiving a part of the deferred debt in exchange for its acceleration (Issue: Write off and expedite). It was stipulated in a decision by the Islamic Fiqh Council of the Muslim World League, [2144] The decision of the Islamic Fiqh Assembly, in the sixteenth session, states: "It is not permissible to discount commercial papers (checks - promissory notes - bills) due to its implication of selling the debt to someone other than the debtor in a way that involves usury [Riba]." ((Decisions of the Islamic Fiqh Assembly)) (P: 365, 366) Third edition. the Permanent Committee in Saudi Arabia, [2145] "It is not permissible to sell or purchase actual and deferred money bonds for less or more than their value, as this is considered clear usury [Riba]. In this transaction, both Usury of Excess and Usury of Delay are involved, both of which are forbidden by the text. May Allah grant us success, and Allah's blessings be upon our Prophet Muhammad, his family, and his companions." ((Fatwas of the Permanent Committee)) (13/35) and the Accounting and Auditing Authority for Islamic Financial Institutions. [2146] In the Sharia Standard number (16) by the Accounting and Auditing organization: "It is not permissible to discount - take off - commercial papers, and it is permissible to fulfill less than their value for the initial beneficiary (creditor) before their due date." ((Sharia Standards)) (P: 445). This is because it involves selling the debt to someone other than the debtor in a way that includes usury. [2147] Decision of the Islamic Fiqh Assembly, the sixteenth session, the first decision, ((Decisions of the Islamic Fiqh Assembly)) (P: 365, 366) the third edition. The implication of it involving usury [Riba] is that it's a loan with interest; the bank lends the customer under the condition that the bank will recover the value of that loan along with the discount price, which in reality, represents the interest received from that loan.
Thirdly: Discounting of Commercial Papers for a commodity
It is permissible to Discount Commercial Papers for an in-kind commodity such as a car or the like, or a specific benefit. [2148] For example, selling the commercial paper which equals one hundred thousand- with a car to the bank. This was stipulated in a decision by the Islamic Fiqh Council of the Muslim World League [2149] Decision of the Islamic Fiqh Assembly state: "It is not permissible for a creditor to sell his current or deferred debt for a benefit of unspecified assets in liability. However, if it is for specified assets, it permissible." ((Decisions of the Islamic Fiqh Assembly)) (P: 458) Third edition. and the Accounting and Auditing Authority for Islamic Financial Institutions. [2150] It is stated in Shari’a Standard No. (16) of the Accounting and Auditing Authority: (It is permissible for the beneficiary to make the deferred commercial paper the price of a specific commodity or a specific benefit - not described in the contract - on the condition that he takes possession of the commodity or specific benefit. Also, it is permissible for the holder of a commercial paper to buy a commodity for a term (as long as the term of the commercial paper), and after the debt is proven on his behalf, the holder of the paper transfers his creditor to the debtor to him with the paper. This falls under the category of transfers.) ((Sharia standards)) (p. 445). This is because it is like selling the debt to someone other than the one who owes it, and this is permissible. [2151] Refer to: ((Sharia Standards)) (P: 456).
Fourthly: Receiving Commercial Papers
Receipt of a now-paid cheque is considered a legal receipt of its contents if it is a certified bank cheque or equivalent, with a balance being reserved in the drawer’s account. It is permissible to deal with this cheque if payment is required. If it is not a certified bank cheque or equivalent, then it is not permissible to deal with it as stipulated by the Islamic Fiqh Council of the Muslim World League, [2152] "The receipt of the check serves as cash possession when its conditions are available in the matter of currency exchange by transfer in banks." ((Decisions of the Islamic Jurisprudence Association)) (P. 293), Eleventh session, decision number (7). the Islamic Fiqh Academy of the Organization of the Islamic Conference, [2153] "Among the forms of constructive possession considered in Shari'ah and custom... receiving a check, if it has a withdrawable balance in the currency written on it when it's cashed, and the bank reserves it." ((Journal of the Islamic Jurisprudence Association)) issue number six (1/ 771- 772), Decision number 55 (4/ 6). the Accounting and Auditing Authority for Islamic Financial Institutions, [2154] In the Sharia Standards of the Accounting and Auditing Organization: "Receipt of a current check is considered constructive possession of its content if it's a bank cheque, or certified, or equivalent to certified; a balance will be reserved in the drawer's account. It is permissible to deal with this check in cases where possession is a prerequisite... making the check the principal for Salam (advance payment). The Accounting and Auditing Organization states that if the cheque is not a bank cheque, certified, or equivalent to certified, it's not permissible to deal with it in situations where possession is a prerequisite. Receiving a current cheque is not considered constructive possession of its content if it's not a draft. It is not permissible to deal with it in cases where possession is a prerequisite." ((Sharia Standards)) (P. 446). the Council of Senior Scholars in Saudi Arabia, [2155] In the decision of the Senior Scholars Authority: "Cheques are considered, in the view of people and their custom, as paper money they are protected by the laws of all countries, where the drawn check on a party that does not have a balance covering the value of the check is considered a serious crime punishable by penal laws in all countries. Given these considerations, it can be said that the intermediate bank's receipt of a check to the value of what it received from the transfer applicant is considered as payment in the same session, i.e., the receipt of the check is like the receipt of its content, thus the currency exchange fulfills its Sharia condition in the concurrent exchange." ((Research of the Senior Scholars Authority)) (5/ 354). and the Permanent Committee in Saudi Arabia. [2156] In the Fatwas of the Permanent Committee: "Receiving a cheque is considered as possession, as in the case of remittance, to ease hardship." ((Fatwas of the Permanent Committee - The First Collection)) (13/ 491). And it's also mentioned: "Receiving a cheque or remittance note is considered as possession in the session." ((Fatwas of the Permanent Committee - The First Collection)) (13/ 448). This is because the bank cheque and the like have great guarantees, which make the one who receives it the owner of its content, and the beneficiary of it can use it. There is also strong protection by the governments of countries that supports confidence in the cheque. [2157] Refer to: ((Sharia Standards)) (P. 456).
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