Current Legal Issues

  • BANKING AND FINANCIAL SERVICE
    • (7) Sale of Bonds

Bonds are certificates issued by legally competent authorities with a specified nominal value and an appointed maturity date. These bonds could be sold, for cash, for less than their real value. For example, a bond bearing the value of one hundred Dinars could be sold for ninety five Dinars. The buyer of the bond shall receive the full amount specified in the bond on its maturity date, say after a year. Banks may be involved in the selling process for a commission.

(18) This transaction is of two types:

  1. The party issuing the bond borrows from the buyer the sum of ninety Dinars, mentioned in the previous example. The bank then pays him back the sum of one hundred Dinars at the appointed date in settlement of the debt. In the process, the five Dinars in excess of the original amount borrowed was accounted for.
    This is usury that is haraam.

  2. The party issuing the bond sells a hundred Dinars, payable back, say in one year's time, for the cash price of ninety five Dinars.
    Although, this is not a usury loan in reality, yet its validity on the basis of sale is within the domain of ishkal, as is previously mentioned.

To sum up, it is not possible to justify the sale of bonds by official parties and others.

(19) It is not permissible for the banks to act as intermediaries in buying and selling bonds. It is also not permissible for them to charge commission for such transactions.