Investigation of the Sale of Credit for Credit with an emphasis on Future and Construction contracts

Introduction and objectives: Future contracts (that are defined as a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future) and manufacturing contract "Istisna" (that is defined as a contract in which the manufacture of goods is ordered by the customer to the manufacturer of the product by stating its characteristics and specifications, so that the manufacturer, by preparing the initial model, will make the desired product for the customer and deliver it to him in a certain period of time, in the Istisna contract the contract price is paid in installments until the due date and delivery of the goods) are two modern widely-used types of contracts, whose natures have been subject of Islamic jurisprudence (Fiqhi) - legal analysis. As such, to settle the Fiqhi complications, some suggest including them in the category of contracts of sale.
If these are types of “contract of sale”, in most cases they stand as Sale of Credit for Credit – as many other new, widely-used contracts in the financial world are also types of Sale of credit for credit, which Fuqaha (an Islamic jurist, an expert in fiqh, or Islamic jurisprudence and Islamic law) are unanimous to be invalid.
But because limiting our view to a number of Fuqaha leads to mistakes about the cases of Sale of credit for credit, we should first understand the true essence of Sale of credit for credit by making clear when the criteria for this contract are met and what relationship it has with the Sale of debt for debt.
In the next stage, we have to validate the arguments presented for their invalidity. If the arguments are proven to be valid, in the last stage, we should suggest some Fiqh-approved solutions to meet the urgent needs of various markets for this type of sale.
Research method: In this study, we used the applied qualitative research method associated with a descriptive-analytical method to collect information from books, theses, and articles in libraries, software, and the useful links.
From another point of view, to achieve all three goals in this mixed method, we used two methods of historical research and content analysis:
In the first step, the old Fiqhi and lexical definitions of the Sale of credit for credit and other relevant sources were collected and analyzed to reach an exact explanation of the essence of this contract and its relationship to the Sale of debt for debt.
In the next step, all arguments on the invalidity of this contract were gathered. Then the source of every Hadith (a form of Islamic oral tradition containing the purported words, actions, and the silent approvals of the prophet Muhammad) was validated and its relevance was explored. Moreover, an argument was made in favor of the Fuqaha unanimity to reject the opinions of those who do not see it authenticate. But because the arguments on the invalidity of this type of contract were supported, finally three alternatives for it were suggested to meet the market needs.
Findings: An important point about the Sale of credit for credit is that “to agree on some point in the future for mutual delivery” is seen as its only criterion by most Fuqaha and lexicologists. Paradoxically, according to the same sources we are convinced that the “generality of the mutual promises” is the other essential element of this contract, that is to say, even if one party’s promise is specific, the contract will no longer be a sale of credit for credit albeit the parties agreement on some point in the future for mutual delivery.
Another contextual point is that the relationship between the sale of credit for credit and the sale of debt for debt is that of intersection. The sale of debt for debt is based on the parties’ commitment before making the contract by deed – even if it is the time for mutual delivery. In the sale of credit for credit, on the contrary, there is no parties’ commitment before making the contract by deed, but it allows for the forbearance for mutual delivery after the contract is made.
As a result, it is clear that, among the arguments made on the invalidity of the sale of credit for credit, the argument on “Hadith prohibition of sale of debt for debt is fallacious because it only disallows those types of sale of credit for credit that are also cases of sale of debt for debt.
The argument on “Hadith prohibition of sale of credit for credit”, however, seems to have no contradiction to Sunnah. Thus any possible faulty element in the Fuqaha unanimity on its invalidity cannot repudiate it.
Conclusion: There has always been dispute over the ambiguous approach of the Iranian Civil Code and other national laws on the invalidity of the sale of credit for credit. As a result, Article 10 of the Iranian Civil Code, which explains the principle of validity of contracts, should be approached with Article 4 of the Iranian Constitution in mind, asserting that “the initiation and generalization of laws contradictory to Fiqh is not valid [and enforceable] [3]”. To summarize, the arguments on the invalidity of the sale of credit for credit seem to be sufficient.
All that said, in cases where two Muslims want to exchange two general goods by setting a time in the future, it is suggested to (1) use a conditional bill of sale; or (2) divide the sale of credit for credit to two contracts, to be specific, in the first contract they make promises on future mutual delivery, while in the second one there is no time conditions and the two goods are traded readily.
Interestingly, Muslims can acquire the property of non-Muslims by sale of credit for credit, even if they are spared by the Islamic state.