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Banking and Financial Service » Discounting of Bill of Exchange

Foreword

1.
Sale differs from loan in that a person becomes the owner of a property against the payment of a particular price. In the case of loan, the property is given into the ownership of a person on his responsibility, i.e. the debtor becomes responsible for the payment of the particular quantity of the commodity or if the transfer takes place against price, he becomes responsible to pay its price.
Also, what sets sale apart from the loan is that usury sale is invalid to start with, unlike the usury loan, in that the latter is invalid because of interest, i.e. the loan itself is valid.

1.
It may be said that sale and loan are different in some other aspect. That is, if there is sale, there must be difference between the thing sold and its price, but it is not necessary in the case of loan. For example, if a hundred Dinars were sold against a hundred and ten Dinars by way of credit , there must be a difference between these amounts, e.g. one of which could be an Iraqi Dinar and the other a Jordanian Dinar; otherwise, if they were all Iraqi Dinars of the same denomination and print, this, in reality, is loan taking the form of sale, because the exchange is of the same kind plus the increase [interest]. It is, therefore, haraam for it is an interest-bearing loan.

2.
However, this is not quite clear, in that it suffices to realise the concept of sale where there is a difference in the exchange, i.e. between the thing sold and the price. That is, the former is a real property and the second is entirely a debt. Moreover, what needs to complement this contention to make such a transaction sound is to say: [For example] the sale of twenty kilograms of wheat for a cash price for the same quantity on credit, under the pretext that, in reality, it is not a usury loan, albeit in the form of sale. Although, as the contender admits, the exchange has been made by selling one thing in return for another plus the increase. That is why it is usury that is haraam

3.
There is a third difference, in that, in the case of loan if the condition of excess payment is imposed, the transaction becomes usury that is haraam because of interest. Unlike sale where the excess becomes absolutely haraam, irrespective of whether the thing given on loan is one of those things that are sold by weighing or measuring. However, it is not so in the case of sale. If the price of the transaction is settled in cash, the excess, is not usury. But if the deal is done on account of credit, e.g. A hundred eggs are sold for a hundred and ten eggs to be paid back in a month’s time, or twenty kilograms of rice for forty kilograms of wheat, to be paid back in a month’s time. To say such a transaction does not come under the umbrella of usury, is not devoid of ishkal. So, as a matter of ihtiyat luzumi, one must avoid such transactions.

2.
As the currency notes are of that which can be counted, you can sell one kind for another preferentially, though they are different in kind, whether for cash or on credit. However, if the currency was of the same kind, cash preferential sale is permissible. As for credit, it is not devoid of ishkal, as is explained earlier on.
Accordingly, it is permissible, for example, for a person who owes ten Iraqi Dinars to sell it for less than the real amount, say for the cash price of nine Dinars. It is, also, permissible for such a creditor to sell what he owes for less, in exchange of, say nine Jordanian Dinars in cash and on credit.

3.
The bill of exchange, which is current among businessmen, does not carry any value, as is the case of bank notes, rather it is used as a sort of evidence, stating that the signatory of the bill of exchange stands debtor to the one in whose favour it was made. That is because the price of goods is not treated to be paid on furnishing a bill of exchange, and if it is lost or damaged by the seller, the goods belong to the buyer and he is responsible to pay the price. Unlike, if the price of goods is paid in the shape of currency notes and those notes were lost or damaged by the seller, the buyer is not responsible to pay the price of goods again.
(28) Bills of exchange are of two kinds:

1.
A bill of exchange that is a proof of a real loan, such as the signatory stands debtor to the person in whose favour the bill of exchange was made, stating the amount of debt.

2.
A bill of exchange that is a proof of an unreal loan.
In the first case the creditor can sell a loan payable on demand for a less amount of cash. For example, he can sell a loan of a hundred Dinars for ninety eight in cash.
Of course, it is not permissible to sell it on credit, because it falls under selling debt for debt. Then the bank or some other person may demand the amount from the debtor (the one signing the bill of exchange) on the date the payment of the debt becomes due.
As for the second case, [when the bill of exchange is a proof of unreal loan], the creditor cannot sell it for cash because, in this case, the person giving the bill of exchange does not actually owe (the beneficiary) anything, and it is just written to enable the beneficiary to realise its value. Hence the name (a courtesy bill of exchange).
Nevertheless, realising the value of a bill of exchange could be done in another way, i.e. by way of sale. For example, the person giving the bill of exchange may make the person obtaining it his agent. He can then authorise him to sell it at a lower price, taking into consideration the difference between the things to be exchanged, i.e. the price of the bill should not be in the currency mentioned in it. For example, the value is fifty Iraqi Dinars and the price one thousand Iranian Tumans. In so doing, the signatory of the bill of exchange will become debtor for fifty Dinars vis-a-vis one thousand Tumans. The signatory authorises the beneficiary to sell the price, which is one thousand Tumans, for an equivalent value, which is fifty Dinars. Accordingly, the beneficiary shall stand debtor to the signatory for an amount equivalent to the debt the signatory owes to the bank.
However, this venue is of little benefit, for it is of consequence when the realisation is done in a foreign currency. When it is done in a national currency, it has no consequence, because you cannot treat it as preferential sale on credit, the forms of which has already been discussed, of that which could be counted.
As for the realisation of the value of unreal bill of exchange in the bank by way of loan, it could be done when the beneficiary borrows an amount which is less than that mentioned in the nominal bill of exchange. Then the bank refers the creditor to the person who signed it [the debtor] for the realisation of its full value. As such this is a non-debtor money order, i.e. usury that is haraam. This is because the condition stipulated by the bank in the transaction i.e. the realisation of the value of the bill of exchange, to deduct an amount from the value of the bill, is a condition to charge an extra amount. From a jurisprudence standpoint, this is haraam, albeit the excess payment is not for the remaining period, rather for the service rendered by the bank. This is because the lender has no right to tie the borrower down with some sort of financial benefit.
This is applicable to private banks. However, if the bank was state owned or a national one, it is possible to avoid that [usury interest] thus: The beneficiary should not intend, from the transaction, to do anything that may be described as sale or loan. Rather, his objective should be to obtain money that is majhoulil malik, which he can assume ownership of after securing the permission of the Marji’ as a matter of ihtiyat. It would then be lawful to have the right of disposal over it after consulting the Marji’ as to the ways of making it lawful. At the end of the appointed period, the bank might approach the person who signed the bill of exchange and impose on him the payment of the value thereof. He can, then, have recourse to the beneficiary for the payment he made, if he had signed the bill of exchange at his request.
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