Current Legal Issues

  • BANKING AND FINANCIAL SERVICE
    • (8) Internal and External Drafts
(20) As a juridical term, a draft requires the transfer of the debt from the transferor to the transferee. However, here it is used in a wider sense.

Hereunder are specimens of bankers drafts:

  1. If a bank issues a draft because of which a person who has deposited money in the bank receives his money at another place, the bank may charge commission in return for assuming such a role. Apparently, it is permissible for the bank to charge such a commission. This is because the bank has a right to refrain from accepting a settlement of its debit if it was not at the place of the loan.
    It is, therefore, permissible for the bank to charge commission for forgoing its right and accepting the settlement of the debt at another place.
  2. The bank issues a draft in favour of a person that entitles him to cash a particular sum from another internal or external bank. This amounts to loan because the person has no account with the bank.
    The bank can charge a certain sum of money by way of commission in return for the service.
    Apparently, it is permissible for the bank to charge such commission for issuing the draft. This being so on the assumption that taking the ji'aala is for acting as agent for the other bank in lending the bearer of the draft the sum of money specified in it; the money paid shall be debited to the account of the first bank held with it. It is not considered as taking the ji'aala in return for being agent in lending, to be haraam. That is, the obligation to pay the ji'aala is not linked to the lending process per se, rather for acting as agent in it.
    There is, therefor, no harm in that.
    Moreover, if the amount specified in the draft was in foreign currency, this entitles the bank to a right. That is, since the debtor owes the bank the amount in foreign currency, it has the right to make him pay back the debt in kind.
    If the bank foregoes this right and accepted settlement of the debt in national currency, it is permissible for it to charge some of it in exchange for choosing to forfeit its right. It also can exchange it for the local currency plus the charge.
  3. A person pays a bank a certain amount of money, say in Najaf and orders a draft for an equivalent amount drawn on another bank in Baghdad or abroad, say Lebanon or Syria. The bank charges commission in return for the service rendered.

    This could take two forms:

    1. The person can sell a certain amount of national currency to the bank for an amount of foreign currency equivalent to the original amount plus the commission.
      There is no harm in it as has been discussed in similar case earlier on.
    2. The bank lends the customer a certain amount of money, then makes it conditional that the borrower pays the bank commission for accepting to transfer the loan [debt] to another person to become the [new] debtor, and settling it in another country.
      This is usury.
      This being so because it amounts to making the extra payment part of the loan [when repaying it], though it was for the transaction of transfer and settlement of the debt..

Of course, such a transaction could be entered into without prior condition attached. One could take a loan from the bank, then request it be transferred to another bank to cash it there.
If the bank asks for a charge for accepting to do the service, it is permissible.

This is because the bank has the right to refuse the borrower's request to transfer the debt to another person to become the [new] debtor and settle it in another country.

This, however, does not fall under what the lender charges for handling the loan and allowing the borrower to delay repayment of the debt, which is usury. Rather, the bank's charges are for the bank accepting to transfer the debt to another person to become the [new] debtor, and settling it in another place.
There is no harm in this.

(21) The bank draft may become two drafts.

The debtor may refer the creditor to the bank to issue a cheque in his favour. The bank then transfers the amount to one of its branches or to another bank in the country of the creditor so that he may receive it there. This being so because:

(i) The draft of the debtor is a credit on the bank. Thus, the bank becomes indebted to the creditor.
(ii) The draft of the bank is a credit on its branch or another bank in the country of the creditor.

The role of the bank in the draft in (i) and (ii) is accepting the draft and issuing it respectively.
Both the drafts are in order from an Islamic shari'a law standpoint.

However, if the draft of a bank issued to a branch representing the same entity, it cannot be said that it be a draft in a juridical sense. This is because [the process of] transfer of the debt from one person to another is absent. It is merely entertaining the request of the bank by its agent [branch] in another place to settle its debt in that place.

Nevertheless, the bank can charge commission for rendering such a service, including its accepting a draft of any of its account-holders who have a credit balance with the bank. This being so because it is considered as a draft on the debtor.

The preferred answer (walmukhtar) is that it cannot be activated without the acceptance of the party it is transferred to .It may charge commission for the service.


(22) Besides the banks, the above-mentioned rules, procedures and their juridical implications could also be followed by common people.

That is, if a person gives some money to another person and asks him to make a pay order in favour of another person, either in the same country or some other country, there is no harm if the person accepting the pay order charges some fee for this service. Similarly, if a person takes some money from another person and gives him a pay order on a third person to realise the amount from him, the person in whose name the pay order was given can claim a fee from the person who gave the pay order.


(23) In considering the discussion mentioned above, it makes no difference as to whether or not the person, on whom the pay order is given, is a debtor as long as there is a balance in the case of the first one, and no balance in the case of the second.