Guidelines for Islamic Modes of Finance, SBP

X a penalty can be agreed ab initio in the lease

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x) A penalty can be agreed ab initio in the lease agreement for delay in payment of rental by the lessee. In that case, lessee shall be liable to pay penalty calculated at the agreed rate in percent per day/annum. However, that penalty shall be used for the purposes of charity. The banks can also approach competent courts for award of damages, at discretion of the courts, which shall be determined on the basis of direct and indirect costs incurred, other than opportunity cost. Also, security or collateral can be sold by the bank (purchaser) without intervention of the court. 4. Salam (Advance payment--Deferred Delivery Sale) i) Salam (advance payment against deferred delivery of goods) means a kind of sale whereby the seller undertakes to supply specific goods to a buyer at a future date in consideration of a price fully paid in advance at the time the contract of sale is made. . ii) The buyer shall pay the price in full to the seller at the time and Settings/Administrator/Des...s by SBP/Essentials of Islamic modes of finance.htm (3 of 6) [2/23/2008 11:33:38 PM]
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State Bank of Pakistan - The Central Bank of effecting the sale. Otherwise, it will be tantamount to a sale of debt against debt, which is expressly prohibited in Shariah. iii) The specifications, quality and quantity of the commodity must be determined to avoid any ambiguity which could become a cause of dispute. iv) Date and place of delivery must be agreed upon but can be changed with mutual consent of the parties. v) Salam can be effected in respect of Dhawatul-Amthal which represent such commodities the units of which are homogenous in characteristics and which are traded by counting, measuring or weighing according to usage and customs of trade. Therefore, other things such as precious stones, cattle heads etc. cannot be sold through the contract of Salam because every stone or individual animal is normally different from the others. vi) It is necessary that the commodity which is the subject of Salam contract is normally expected to be available at the time of delivery. vii) Salam cannot be effected in respect of things which must be delivered on spot. Examples are exchange of gold with silver or wheat with barley where it is necessary according to Shariah that the delivery of both be simultaneous. viii) Salam cannot be tied to the produce of a particular farm, field or tree. ix) In a Salam transaction, the buyer cannot contractually bind the seller to buy-back the commodity that will be delivered by the seller to the buyer. However, after the delivery is effected, the buyer and the seller can enter into a transaction of sale, independently, with their free will. x) In Salam transactions the buyer shall not, before taking possession (actual or constructive) of the goods sell or transfer ownership in the goods to any person.
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